Homeownership. Say it with me. Home ownership. Sounds nice, right? You can almost see the white picket fence, the dog in the backyard, and the car in the driveway when you say it. Maybe it's in the suburbs outside a big city, or maybe it's a nice farm out in the middle of nowhere. No matter where it is, it sounds so nice.
It's the classic American dream for most of us, and with a little careful planning, it's very possible that you might be able to plunk down the cash for an FHA loan of your own. As idyllic as it is to have a home in the suburbs, many people are starting to eschew ownership altogether.
Apartments have a lot to offer people who live life fast, or just don't have much money to save. In the battle between owning vs renting a home, the victor isn't always that easy to spot.
In terms of investing, it can be hard to figure out which solution is best—but it seems like there's a clear winner. Let's take a look to find out what's the scoop, shall we?
Renting wins when it comes to how much you need to have saved up.
We can't talk about renting vs owning a home without talking about the down payment. It's the elephant in the room, and in many cases, also a major gatekeeper for those who want to buy a house or a condo—but can't.
With an apartment, you really only need a couple thousands dollars (at most) to get shelter in a relatively decent neighborhood. A house, though, can easily end up being too pricey—especially via traditional home buying routes.
A 20% down payment is required for most kinds of loans, if you can't qualify for an FHA loan. Considering that the median home value is around $150,000 nationally, that means you're looking at a $30,000 down payment. Most people simply can't afford that.
However, there are ways to make ownership possible using "bridge" loans. In some cases, you can buy a home without putting any money down.
The tax benefits though, are good.
Everyone knows that home ownership comes with a variety of tax benefits. Federal laws dictate that you can write off any interest you're paying on your home loan as a deduction. Other tax deductions can also apply to your home.
Renting? Eh, not so much. Most of the time, you end up paying the taxes that landlords would pay as part of your rent. The only time it makes sense to rent would be in commercial space, since it'd be a total business write-off.
In this fight between owning vs renting a home, owning wins.
Home owners can rent rooms, renters can't.
We're also going to need to take a look at the renting side of the owning vs renting a home battle, because, let's face it, it's something that needs to be discussed in a world where renting is increasingly common.
Let's say that you end up in dire straits. You lost your job, or you need extra money. Renting an apartment on Airbnb might not be allowed in your contract. In fact, most landlords bar people from subletting under any circumstances.
With houses, though, renting is allowed under the vast majority of circumstances. They can't prevent you from renting your property, because it's your property.
Over time, the price of homes will continue to increase—and with it, rent.
If you pay attention to value investing and want to learn how to invest like Warren Buffett, you already know that you need to look for things that work out in the long term. This is where the advantages of owning vs renting a home really start to show themselves.
For the most part, house and land prices increase as years pass. If you rent, you're going to have to deal with the increase in prices. What now costs $800 will eventually cost $1100. If you own a home and pay $800 in mortgage, the price of your home will remain the same.
Considering that wages stagnated over the past 30 years, any savings or safeguard that you do have against inflation is something that you should really look into.
There's also the fact that homeownership comes with more physical security than renting.
Homeownership is definitely the more secure of the two. When it comes to the perks of owning vs renting a home, there's a lot more to consider in terms of safety and stability. Here are some of the reasons why it's a better investment:
- You can't get forced out as easily. An angry or otherwise unhappy landlord can find ways to evict you. In apartments, the eviction process can take as little as a week to 30 days. Foreclosures, however, can take months or even years—and banks also need to have ample proof of nonpayment to make it happen.
- You can also stay away from extra rules. Not all homes in America are ruled by an Home Owner's Association. If you hate the idea of being fined for a bad landscaping job, you can avoid it by choosing a different area.
- Homeowner's insurance covers a lot more. Renter's insurance is great, sure, but homeowner's insurance has a tendency of paying out more in the event of a major loss. However, this point isn't always true.
A lot of people find renting to be a waste in certain situations... and they'd be right.
One of the bigger arguments in the battle between owning vs renting a home is where the money you're spending goes. When you're renting, you're not going to see the money you put down come back to you.
Investment-wise, the truth is that renting is a wash in many situations. Paying rent does not give you anything extra in terms of return. You're not seeing that money back unless you're subletting; you're just paying for a roof over your head.
With ownership, paying off your home means that you end up having a massive chunk of land that you own. You're building equity! You could sell it, rent it out, or use it to get a reverse mortgage when you're older. That's a huge perk that yields a lot of money later on.
As far as what the experts say, it's pretty clear that there's a victor in owning vs renting a home.
Though we want to say that there's a lot of people who enjoy the convenience of renting more, the truth is that most experts advise towards owning.
Robert Kiyosaki, who wrote Rich Dad, Poor Dad points out that home ownership (or really asset ownership) is the way that most people are able to gain financial freedom. Many others point out equal kinds of statements.
However, there's a caveat. Kiyosaki and others note that a home is only an asset if it makes you money. If you're not going to eventually profit off your home, it's not an asset. That being said, the value of the home and the potential of getting a reverse mortgage can make it worth your time.
There's also the fact that homes can be used as collateral in major loans.
Another thing that you may want to consider in the argument for owning vs renting a home is the loan aspect—not home loans, either. If you own a house, that's a LOT of equity that you can use as leverage.
A lot of business owners wouldn't be able to obtain a business loan without putting their home down as collateral. This could have led them to be unable to make more money, which in turn, would have left them stuck in a bad position.
If you need loans, renting is not the way to go.
Budgeting is easier with owning a home than it is to rent.
Everyone can and should plan out a budget. It's just the facts of life. One of the more obvious logistic points to consider when figuring out your own decision on owning vs renting a home is the budgeting issue.
Rent is stable from month to month, sure, but it's not stable from year to year. In parts like San Francisco, it's really not unusual to see rents rise as high as $1,000 per month on a single bedroom apartment once the year lease ends.
Owning a home stabilizes your housing costs. This is priceless if you're a planner who sticks to a strict budget. Then you can start learning all the lifehacks for new homeowners!
If you're looking for sustainability, the argument between owning vs renting a home is already over.
Owning allows you to grow equity, stabilize your budget, and also just make things run smoother. You get more options on how to turn a profit, and you get more freedom. How much better can it get?