Why Rent When You Can Own?
A home is more than a financial asset. It is a place to live and raise a family, it is security for the future and an investment in your community.
Most people believe that it is more beneficial to own their home than to rent a home.
But why is this true?
- The interest that you pay on your mortgage is tax deductible so you pay less income tax.
- Most people would rather own a home than collect rent receipts.
- Your monthly payment does not go up just because a landlord wants more money.
- As your home appreciates in value you benefit from that increase.
- Home ownership builds your personal wealth.
- When your rental unit increases in value who receives the benefit of that appreciation?
- Your Landlord does – You get nothing, or possibly an increase in your rent.
How does this appreciation work?
As an example, let’s look at a $150,000 home.
For illustration purposes, we will assume that prices remain flat in the first year of ownership and increase mildly in the second year. By the end of the third year your home has already appreciated to $157,560. After ten years, assuming a mild return of 4.0 percent per year*, your $150,000 home will be worth $207,338.
* Average price appreciation from 1970 to 2008 was 6.0%
Your Homes Appreciating Value:
|Year||Price Growth||Home Value|
Your total appreciation after ten years is $57,338.
That is nearly $475 per month – which goes directly into your net worth.
Homeownership Builds Wealth
According to the Federal Reserve Board estimates, homeowners’ net worth has ranged between 31 and 46 times more than that of renters in the years 1998 to 2007. In 2007, the median net worth for homeowners was $234,200 compared to $5,100 for renters. That difference will narrow as a result of the housing price declines since 2007, however, homeowners will still have significantly more net worth than renters.
How do you build up your net worth?
One way is to work hard and never spend money on anything.
The money you are able to save will be your net worth.
Another way is to buy a home of your own. When you own your own home, you build wealth in two ways:
With each monthly payment you reduce the principle (that is the amount you owe) on your mortgage.
As the value of your home increases and you pay down your mortgage loan, the difference (your net worth) increases.