Like most things, there are costs and benefits, the yin and the yang, the good and the bad…well, I think you get the point. So lets look at the benefits of home ownership vs. renting. This isn’t meant to be comprehensive in any way, but hopefully it will provide some ground work if you are vacillating between buying a home or just renting FOR.THE.REST.OF.YOUR.LIFE!!
There are a couple of angles to this argument. First, if you finance your home with a 30-year fixed-rate mortgage, you have stability with regard to your payment. It will still vary a little as property taxes and homeowners insurance rise, but the biggest part of your payment will remain the same for 30 years – of course, it’s a rarity that people keep a house for that long (and for wealth creation purposes, it may not be the best strategy – check this out) or their mortgage since people have been known to refinance to take cash out of their house to use for a variety of things. Regardless, if you keep your house and your mortgage for 30 years, you’re principal and interest payment won’t change. You can’t say the same about your rent; as prices go up, you better believe that the rent your landlord charges you will also increase.
A second element of stability is that you control where you live. If you own your home, you can live there forever and decorate it however you want and redecorate it to your changing tastes whenever you want. Conversely, if you rent a home, you may be forced to move if the landlord decides it’s time to sell – for any number of reasons. If you were lucky enough to have a landlord who didn’t increase your rent much of the several years that you lived there because he liked you and appreciated your on-time payments, you will now likely experience a large increase in your rent payment if you move into a similar home.
I talk a lot about this; one reason is because the savings rate in the US is very low compared to other 1st world countries. We need to do a much better job of saving and, better yet, investing. The 2nd reason is because while there are lots of great investments, real estate is probably the best. More millionaires have been made from real estate than any other single form of investing. With real estate, you get the ability to use leverage. There are also great tax benefits that help you keep more of your money for investing. I’ve got a 6-part video series on my website about real estate investing; each video is from 5- 12ish minutes – check them out and you’ll get a clearer picture of why I’m a fan – you’ll find them in the drop down menu. The bottom line is that when you own real estate, with few exceptions, you will create wealth for yourself.
If you rent, you get to help someone else create wealth. They enjoy all the benefits of wealth creation that real estate provides. What is your plan for retirement? Do you have one? Many people, dare I say most people don’t. The right kind of real estate can help you grow your assets while you are working and don’t need income from your rental properties. When you want to retire, you can switch your real estate to more income-oriented properties. Check out the video series for some great ideas and strategies on real estate investing.
I don’t think people should ever make a decision based solely on tax benefits but they are nice to have. Buy a home for the stability and the wealth creation capabilities it offers, but enjoy the tax benefits of being able to write off your mortgage interest and your property taxes. Sometimes the government even lets us write off the mortgage insurance. If you own an investment property, probably not the first home you will buy, then you get big tax deductions like depreciation and you get to defer your capital gains via a 1031 exchange. Just watch the video series and you’ll get it all there.
It’s Your Home
In the end, when you own a home, you can do whatever you want with for however long you want to live there. My parents owned the home I grew up in for 25 years before they sold it after my brother and I were all gone and they moved back to Salt Lake. I have lots of memories in that home. Some of the memories are of all the redecorating and remodeling that was done over that period including a MAJOR renovation that they did after my brother and I were out of the house. Other memories were of Christmas mornings, Thanksgivings with friends, playing baseball and football in the back yard and basketball in the driveway. I don’t think these memories would be the same in an apartment or home we were renting. It was our home and I’ve tried to do the same with and for my kids.