Renting Versus Buying A Home
Renters are often in a quandary as to whether it makes sense to
continue renting or buy a home. Buying a home makes more sense,
particularly when taking a long-term view. Yes, even in the
current hot real estate market.
Renting - Advantages
Renting can have a few advantages depending on the part of the
country you live in. The primary advantage is your monthly rent
payment may be less than an equivalent mortgage. A secondary
advantage is the fact that maintenance and improvements to the
property are the responsibility of the landlord. Still, these
advantages pale in comparison to the disadvantages of renting.
Renting - Disadvantages
The disadvantages of renting are significant. If you have any
opportunity to purchase a home or condominium, it almost always
makes sense to do so.
The biggest disadvantage of renting is the loss of value. Assume
you rent a residence for $1,000 a month and you live in the
residence for two years. You will have paid a total of $24,000
in rent, a pure expenditure. The $24,000 is simply gone and you
will have nothing to show for it other than the time you spent
in the home. Compare this to what your landlord has gained.
Rent payments are closely aligned with a landlord's mortgage
payment. Using the above example, lets assume your $1,000 rent
exactly equals the mortgage payment. For two years, you have
indirectly paid the landlord's mortgage, helping them build
equity in the house by paying down the loan. In addition, the
landlord has benefited from the appreciation of the property.
By appreciation, I simply mean the amount of increase in the
value of the house. If the rental appreciated $20,000 in two
years, the landlord has received a windfall. They may have seen
a gain of $24,000 in appreciation and payments lowering the
mortgage. As a renter, you have made this all possible. The
landlord no doubt would like to thank you.
Now, what would have happened if you had purchased a similar
home with similar financial figures? You would have seen an
increase in YOUR wealth of $24,000, not the landlord's wealth.
If you renting, these figures should make your teeth grind.
If you are renting, you should be out shopping for your own
property. After all, isn't it time to make your money work for
you, not a landlord?