Renting - Making Other People Rich
Many renters say they prefer to rent because it is simple and
doesn't carry the stress of home ownership. In truth, they are
simply making other people rich.
Equity
What if I told you that if you purchased a home, you wouldn't
have to make any monthly payments on it? On top of this, I'd
promise you that when the house was sold, you would get to keep
all of the equity gain in the home. Sound like a pipe dream?
This is exactly what renters are doing for their landlords.
Regardless of how you break down a renting versus homeownership
argument, there is one universal fact. If you rent, you are
building equity for your landlord. Let's take a look at a simple
example.
Assume you rent a unit in a duplex and pay $1,000 a month for
it. Assume further that you live in the unit for three years.
During this period, you will have paid your landlord a total of
$36,000. You can further assume that your landlord's mortgage
payment was less than $36,000 or he would raise your month
payment. The end all effect of this situation is you have paid
his mortgage for three years. Think about that for a minute.
Over the three years, you have made every single mortgage
payment for your landlord. In doing so, you have helped him
build equity in the home through the part of the mortgage
payments applied to the principal of the loan. On top of that,
the equity growth in the property is entirely his. If you've
paid off $10,000 in principal and the home has appreciated by
100,000, you've just put $110,000 into his pocket. Yep, you've
been making other people rich.
If you're renting, you will undoubtedly find the above scenario
very depressing. Unfortunately, it gets worse. Go ahead and make
a list of your assets and debts. List every single thing you can
think of and then subtract the total debts from the total
assets. Whatever the number is, would it look better if you had
added $110,000 to your balance sheet instead of your landlords?
Renting is a necessity, not an option. You should only rent if
you cannot get into a home for some reason. With millions of
loan options out there, home ownership should be at the top of
your priority list.