The economy is changing. So many have shifted their thinking in favor of renting rather than buying a home. You hear people say that renting is cheaper. And they cannot afford a down payment for a home.
Because such people associate with others in their tax bracket, they could fool themselves into imagining that they are the majority. So let’s establish what most people say about this important topic.
Then we will take a deep dive into the economics of renting verses home ownership.
* 65% of Americans: the number of US citizens who own their home
82.8 million: the number of owner-occupied homes
42 million: the number of rented units in the United States
93%: Number of Americans who believe owning a home is a better investment than stocks.
So renters look at monthly outlays in the short term. They take a monthly budget and they conclude that they spend less now if they rent.
Traditionally, many with a limited income defended their viewpoint this way: I can hardly buy groceries, pay utilities and make the rent on time. Saving for the future is impossible now. Who needs unexpected bills for repairs, yard work, property taxes and homeowners insurance? Such people seldom take a long view of the future.
Of course, this is a totally valid point. But the moment circumstances change, so their mindset also changes? Not always. Therein lies the problem. There is no need to beat a dead horse. Not all can afford a house now.
Is it possible that with some budgetary adjustments some on the margins could afford a small house, parlay their assets and later upgrade? But in order to develop that goal, they first need to see the short- and long-term advantages of home ownership.
Compared with what? Renting forever.
Cons on renting: You build your landlord’s wealth. Monthly rental payment increases. Limited home customization. You have the inherent need to move often. You inherit difficult neighbors, with and without pets, some good and some not so much. Landlords change, sometimes frequently, and so do their demands and preferences.
Pros on buying: Build your own wealth. monthly payments locked in. Freedom to customize your place. You often have more upscale neighbors because ownership instills a certain pride to better care for their belongings. Many of your expenses are tax deductible. If you live in your home the last two years before you sell it for a massive profit, you do not have to pay the dreaded capital gains tax in South Carolina.
So if you bought a house for $70,000 decades ago and sold it today for $300,000, you could receive that windfall largely intact. Compare that figure with renting for four decades. All you get is a fistful of receipts. No cash.
Renting may cost less money
There are fewer financial burdens on renters when they first move in, as the initial investment to rent a home is usually lower than buying. Funds used towards a down payment or higher mortgage repayments can be invested elsewhere.
For what purpose? Often to buy a home. So we are back to square one of having a goal of buying a home later. And for many sooner than later.
Fewer responsibilities
There’s no need to take care of repairs when you’re renting. The landlord is responsible for these tasks, meaning you have fewer responsibilities and don’t need to fork out on expensive maintenance costs.
Diversify asset investment
Renting your place means you can diversify your investment opportunities on a broader array of assets, as you aren’t plowing the majority of your resources into where you live.
Advantages of buying
Investment
Buying a home is generally viewed as a solid investment and one of the safest ways to invest your money in the long term. Just this year, house prices have increased by an average of 12%.
Equity
You can enjoy access to equity if your house rises in value over time. Therefore, you could potentially remortgage and borrow more money for other investments or sell at a profit and benefit from increased personal wealth.
More control
As a homeowner you have more control over your home and can decorate as you wish without worrying about what a landlord may think. You also don’t have restrictions on how much noise you make, whether you own pets, and even if you have any children.
Tax breaks
The mortgage interest and some closing costs can be tax-deductible, and you get most of the relief in the early years of homeownership when you’re mostly paying back the mortgage interest.
Lay down roots
If you want to stay somewhere long-term and start a family, buying is a better option than renting. You have your own home and can create long-lasting memories as you raise a family.
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