All my friends who bought homes before their 30th birthday loved declare that by paying the rent they are no longer “throwing more money away”.
Although I now own an apartment when I was a tenant, I never felt that rent was wasted money. After all, I exchanged my rent check for an apartment, something I did necessary.
Today I am changing my mortgage payment (plus a lot of extra money I have to spend on maintenance) for an apartment.
Why renting is great
The financial benefits of home ownership are often overestimated. But renting has some great benefits that you should not overlook.
It is as flexible as you need it to be
Most leases are only one year. So if you’re not willing to commit to living in one place for five years or longer, renting allows you to stay as long (or as short) as you want.
If you buy a house, turn it over and make a profit, it is very difficult to do in one year. So renting saves you pain.
You are not responsible for the maintenance of the property
It is also worth emphasizing the freedom that renting gives you from monotonous and expensive maintenance.
When I first bought our house, I could hardly wait to buy a lawn mower and mow my new lawn. A few years later, I started paying someone to mow him down, and if he calls me sick, he makes me angry. I have to spend two hours of the weekend walking back and forth around the yard.
Ever since we bought our home, we have had to spend thousands on water supply leaks, basement flooding, dilapidated appliances and other costs.
Don’t get me wrong, I love our home, but it didn’t go without headaches.
When I hired, I took the fact that I didn’t have to worry about maintenance to take it for granted. But make no mistake, being a tenant is a big advantage.
Renting can benefit you financially
After all, you can also do renting to your advantage financially.
If you live in a market where you can rent an apartment for significantly less per month than you could have a home, you can make a difference. And the difference doesn’t have to be big to make an impact!
For example: let’s say you rent for $ 1,000, but you would have to pay a $ 1,300 mortgage payment for a comparable home. That would be $ 3,600 each year that you can invest.
Unlike equity, the savings you earn from renting are liquid. You can use them to build an emergency fund, repay a student loan debt, or finance a retirement account – none of which you can do with equity.
A house is not always a good investment
It’s true: some make millions by investing in real estate. Some homeowners were even lucky enough to retire only about the continued value of their home 30 years after they bought it!
For most, however, the reality is very different. You should not think of your primary residence as an investment.
Read more: The truth? Your house is not an investment
Yes, a well-maintained home in a desirable location should be appreciated in the long run. But numbers don’t always work that way. Expected returns vary greatly from city to city. While some homeowners enjoy lavish returns, others may notice a negative rate of refund of the primary purchase of the dwelling.
According to an analysis by Improvement, the average rate of return for homeowners from 1926 to 2018 was 8.56% to 9.96% per annum. However, the stock market slightly exceeded this average annual return by 10.1% per annum the same period.
Faced with these numbers, the decision to invest or not to invest in the primary residence hangs on the edge. After all, the return you will experience as a homeowner will depend on a number of factors, some of which are beyond your control.
Houses are actually money pits
Next is the undeniable fact that home maintenance is expensive. Houses require occasional painting, landscaping, roofing, HVAC maintenance, and many other things. They are also full of expensive appliances that break down in the most awkward moments. To illustrate this point, my friend had to replace the stove in refrigerator the first year he lived in his house.
Why do you think your landlord is returning your call about a leaking sink so slowly?
He wants to get as many years out of this sink as possible.
When we have our own homes, we repair and renovate based on emotion, not value in resale, making home ownership much more expensive than renting.
You can’t control taxes – or your neighbors
When you buy a home, you make a long-term commitment to your neighborhood, for better or worse.
If you live in a city or town with an excellent economy and school system, the value of your home is likely to increase (as well as property taxes). And if your salary doesn’t go up as high as the salaries of new people flocking to your city, you may not be able to afford to stay there.
I’ve seen this happen to both my parents and my father-in-law, and it is not beautiful.
On the other hand, if your neighborhood gets worse, you not only live there, but you own property. If you are renting, you can move in at the end of the lease and let your landlord figure out how to handle the property being depreciated.
Edini real argument for home ownership
A huge number of Americans have their own homes, so there are obviously some reasons why ownership is worth it.
You will own one day your home
This cannot be underestimated. Some people just want to own property. The good news is that when you repay the mortgage, you will not pay the mortgage payments. If you are a tenant, you will constantly you have to pay rent.
Yes, you will still have to pay property and utility taxes on your apartment. but there are significantly fewer of these if, moreover, you do not have to pay the loan.
You will build capital in your home
Until your property is depreciated, you will eventually build capital in your home.
With each mortgage payment, you “save” a few hundred dollars or more in the equity of your home, which could one day be liquidated in a sale or refinancing.
If everything remained the same, if you could live in the same home for $ 1,000 a month rent or a $ 1,000 mortgage payment (of which an average of $ 600 each month goes to principal), owning a home seems to make financial sense because you stick to 600 $ per month before taking into account maintenance and other costs.
This is certainly a good thing, but I do not think it is useful enough to attract people to become homeowners prematurely.
There are simply too many other factors to consider, but I think the two are the biggest:
- If you don’t live in your house long enough, a large or all of your equity will be wiped out with real estate commissions and the cost of closing a new home.
- Equity is not liquid. If you need money, you will be forced to sell your home or refinance (take on debt and pay more interest).
Yes, paying a mortgage and building equity help you build wealth. But it only works if you stay in one house for a very long time and don’t borrow against it.
Want my simple, pointless financial advice about housing? Keep in mind that your monthly housing costs (either rent or mortgage) are your payments for the apartment. Spend appropriately and save or invest the difference.
If you want the pride (and responsibility) of owning an apartment, be sure to buy a home – you maybe even make money on it. But don’t count on your home as an investment.