The Difference Between Renting and Buying a Home...
The process of buying a home can seem daunting. For many potential home buyers, the work-versus-reward can be hard to fathom and lead to indecisiveness.
In my experience, homeownership greatly benefits everyone but a very few people. Owning your own home builds wealth and puts you on a path to better financial security.
So let’s keep it simple. Here are 3 important factors to consider when deciding to purchase a home versus renting one.
Factor #1: Buying a Home Avoids Rising Rents
When You Rent:
Your monthly payment generally goes up each time you sign or renew your lease. Historically, rents always rise—sometimes dramatically in a short period of time. When you rent, you have no control over how much you pay to stay.
When You Own:
For most people, owning a home means having a fixed-rate mortgage. This means your monthly payment is locked in for the life of your home loan—15, 20, 30 years. It’s predictable and cannot change unless you choose to refinance.
Factor #2: Homeowners Own a Tangible and Valuable Asset
"…the average U.S. homeowner now has about
$290,000 in equity."
CoreLogic
When You Rent:
Renting is paying for the privilege to live in someone else’s property. You don’t get any return on your investment as you pay your monthly rent. In fact, you are giving your landlord a return on their investment, which isn’t wrong—it just doesn’t benefit you.
When You Own:
As a homeowner, every payment you make pays down your mortgage and gives you more value—also called “equity”. This, coupled with ever rising home prices, provides you with even more equity.
Factor #3: Owning Your Home Grows Wealth Over Time
“A monthly mortgage payment is often
considered a forced savings account that helps
homeowners build a net worth about
40 times higher than that of a renter.”
Lawrence Yun
Chief Economist, NAR
When You Rent:
When the cost of rent goes up, it becomes more difficult to invest or save money—for things like a down payment to buy a home. This unpredictable cost can cost you a lot of money in the long run.
When You Own:
As you build equity in your home through the years, you give your net worth a big boost.
Equity is defined as the difference between what you owe on your mortgage and what your home is worth.
Let’s use simple numbers in a simple scenario:
Let’s say you bought your home for $300,000.
You put 3% down—$9,000–as a down payment.
Your mortgage is $291,000.
You live in and maintain your home for 10 years, all the while making your mortgage payment every month.
10 years pass and you decide to sell your home.
Your real estate agent does a CMA (Comparable Market Analysis) and determines the market value of your home is now $390,000.
After 10 years of mortgage payments, your owed balance is $230,000.
If you sell your home for $390,000 and pay off your mortgage of $230,000–you have $160,000 in equity or profit.
The neat thing is, every month you pay your mortgage you decrease what you owe bit by bit. At the same time, your home is worth a little bit more every month (generally). So the longer you own your home, the more equity you build—simply by paying down your mortgage while your home’s value increases. Make sense?
Conclusion
Most people recognize the difference between renting and buying a home. Hopefully these 3 factors motivate you towards homeownership.
And I get it. Not everyone can buy a home right away—it takes effort to achieve this goal. And while it can seem outside your reach, I assure you the effort is worth it
Now, you might be one of the very few people who wouldn’t benefit from homeownership—right now. If you’re prone to moving frequently, or have another specific means of intentional wealth creation, now might not be the time to purchase a home. But I would encourage you to work towards that goal—because there will be a time when it makes sense for you to own your own home.
As always, if you are looking to buy or sell a home in the greater Charleston area—please reach out. I am happy to provide you with the resources you need. No obligation.
—Ryan
843-469-6825
