Renting Adds Up. Buy a Home Instead!

Buying

Need a reason to justify your reason for wanting to own a house instead of renting? Here are 10 reasons for you, backed by proven facts.

Home-ownership has always been considered the gateway to the middle class and a benchmark of the American Dream. However, many families have chosen to find domestic bliss without paying a mortgage in recent years. What they're missing are the big benefits of home-ownership that just can't be replaced by renting.

Research shows that owning your own home has distinct advantages over renting, especially when it comes to building your net worth and providing a stable environment for your family. If you're sitting on the wrong side of the white picket fence debating whether to rent or buy your next home, read our list of 23 reasons why owning your own home is better than renting.

#1:  IT'S CHEAPER THAN RENTING

Although buying a house is more expensive at the outset, it can actually be cheaper than renting in the long term if you play your cards right. According to real estate website Trulia, home-ownership is 38% cheaper on average than renting nationally, which is a 3% decrease from 2013. Their calculations are based on a traditional 20% down, 30-year fixed-rate mortgage. They compared the total costs of home-ownership (including maintenance, taxes, and insurance) to the total costs of renting for the same period of time.

They attribute the drastic difference in costs to the rising costs of rent and the low fixed-rate mortgage rate, which currently sits at 4.3%. That's not to say that buying a home isn't expensive - you'd still have to come up with the 20% down payment or pay mortgage insurance that would eat into your overall savings. The fact is by paying more up front on your own home, you can actually save money in the long run.

#2:  IT FORCES YOU TO SAVE

Speaking of that 20% down payment, have you considered how you're going to pay it? Anyone who has had to save money for a large purchase knows that it takes discipline to budget properly so that you can reach your goals faster. Many experts argue that homeowners are more financially responsible because they've made the effort to save money for the down payment on their home.

A survey conducted by Canadian mortgage insurer Genworth shows that homeowners are in better financial shape because they exhibit better money habits. For example, 65% pay their credit card balances each month, 25% try to pay more than they're required to on their mortgage, and 44% pay all their bills and are able to save money, too. If you ever need an excuse to save, saving for your dream home should be enough motivation to get your act together.

#3:  YOU CAN BUILD EQUITY

One of the most significant benefits of home-ownership is building equity, which is your share of the value of your home. In more technical terms, it's the difference between the market value of your home and the amount that you still owe. If you pay 20% down on a home that costs $200,000, you would owe $160,000 and your equity would total $40,000 (the interest you'll pay doesn't factor in to this equation). Pretty straightforward, right? However, if your home appreciates in value, your equity increases even though the amount you owe does not.

Let's say that in a few years, the market value of your home increases to $275,000, and you've paid off a total of $70,000. You still only owe $130,000, but your equity would be valued at $145,000. A study conducted by Merrill Lynch found that while homeowners under the age of 35 have equity valued at $53,700 on average, homeowners over the age of 65 have around $212,800 in home equity. If you buy a home now, imagine how much equity you could have by retirement! Instead of your money disappearing into your landlord's pocket each month, you'll be paying into something that can become more valuable over time.

#4:  IT INCREASES YOUR NET WORTH 

Home-ownership is more than just the American Dream, it's also been an effective way to build one's net worth. Sure, business acumen and investing know-how are other ways to build wealth, but for the average Joe, home-ownership has been the most tried and true method of building net worth. You can calculate your net worth by subtracting your financial liabilities from your assets, which include investments, savings, retirement funds, home equity, and other valuables. Finance professor Sebastien Betermier estimates that housing accounts for 67% of the average American's total wealth (an unwise money move in his opinion, but a norm nonetheless). Unless you're consistently saving and investing your money through other means, a house can serve as a way to store your wealth and build your net worth.

#5:  YOUR HOUSE CAN INCREASE IN VALUE OVER TIME

Let's be frank — property doesn't always appreciate in value over time (which many learned the hard way in 2008), but guess what? Many experts believe that the worst is behind us. If you do your research and purchase a home with both eyes wide open, your home's value may increase each year that you own it. Zillow economist Stan Humphries estimates that the average house appreciates in value around 3.5% each year, but some areas experience steeper increases. For example, Neighborhood Scout, which provides neighborhood information to buyers and renters, estimates that homes in Sherman, Texas, have increased in value 13.15% in the last year.

When deciding on your future home, it would be best to avoid areas with a high traffic volume, foreclosures, and crime because your home could lose value. However, qualities like good schools, "up-and-coming" neighborhoods, local employment, and even its proximity to a Starbucks are signs that your new house could end up being worth more than its buying price.

#6:  YOU CAN HAVE PETS

If you're an animal lover, your desire to have a furry companion may be thwarted by strict renting rules. Landlords may be flexible when it comes to birds and fish, but dogs and cats are often deal-breakers for more demanding landlords. According to an Apartments.com study, 72% of renters are pet owners, and two-thirds of them have had problems finding housing that accepts pets. Renting with a pet can also get expensive - more than 50% of pet owners were required to pay more than $200 annually on their pet deposits. The American Humane Association survey reveals that the number one reason that pet owners give up their pets is because of "moving," which suggests that many could not find housing to accommodate their pet. Owning your own home is a surefire way to provide Fido or Whiskers a forever home.

#7:  YOU CAN RENT OUT YOUR HOME

Contrary to what you might think, owning one's first home isn't the end of the road for many homeowners. Although home-ownership is a long-term commitment, many homeowners go on to rent their homes when they purchase a second one, or even rent out extra space to other tenants. Zillow ran calculations to see where homeowners can earn more by renting out their home to tenants in comparison to selling. They found that homeowners who live in cities like San Jose could earn as much as $8,927 annually from renting out their home in the long-term. According to the 2001 American Housing Survey, 21.3% of people who owned second homes rented them out to tenants. Unlike renters, homeowners can make a profit by renting out their additional space.

#8:  PART OF YOUR MORTGAGE PAYMENT IS TAX DEDUCTIBLE

Owning your own home comes with more responsibilities and expenses, but the good news is that some expenses are tax deductible. Property taxes, private mortgage insurance premiums, energy-efficient additions to your home, and the interest that you pay each month on your mortgage can all be deducted from your taxes. Although you're on your own when it comes to maintenance and repairs, at least you can deduct a portion of your monthly housing expenses on your taxes - a benefit that renters don't have.

#9:  YOU CAN TAKE OUT A SECOND MORTGAGE IN CASE OF EMERGENCY

Your house is an investment and is most valuable when you're paying off your mortgage and building equity. However, if you ever find yourself in dire straits, taking out a second mortgage on your home is an option that you would never have as a renter. When you take out a second mortgage on your home, you borrow from the equity you've already accumulated on your house, either with a home equity loan or a home equity line of credit. The second mortgage is basically a second loan in addition to your original mortgage.

Because you're using your home as collateral for the loan, the decision to take out a second mortgage should be one that you weigh carefully. If you default on the loan, the bank can repossess your house, making all your hard work for naught. According to the 2013 American Community Survey, more than 7 million Americans have taken out a second mortgage or a home equity loan. Common reasons that people take out a second mortgage are for major home repairs, the purchase of a second home, medical bills, or financing a child's college education. Although taking out a second mortgage should be a last resort, homeowners have an advantage over renters because they can use their home equity if an emergency arises.

#10:  YOUR MORTGAGE PAYMENTS WON'T INCREASE WITHOUT YOUR SAY SO

If you're a homeowner in an up-and-coming neighborhood, then congratulations - your home will probably appreciate in value in the coming years. If you're a renter in an up-and-coming neighborhood, then you better brace yourself for the rent hikes that come with increased demand for housing. Trulia's rent monitor shows that rents increased by 6.5% nationally last year, but larger metro areas experienced even sharper increases. In San Francisco, for example, rent prices rose 15.5% from 2013 to 2014.

When you purchase your own home, your monthly mortgage won't deviate too far from your first mortgage payment, although the percentage that goes towards interest and the principal will change over time. With a fixed-rate mortgage, the interest rate is fixed from the time you sign the loan. If you opt for an adjustable rate mortgage, the interest rate may start out lower than a fixed-rate mortgage, but it will change depending on a specific index (which is determined by the lender). Other factors that may increase your monthly mortgage payment are local property taxes (which you have little control over) and home insurance premiums. However, as a homeowner, you definitely won't find yourself in the same predicament as this woman, whose landlord increased her rent by 400%.

 

 

 

Psst! I've got 13 MORE reasons that buying makes more financial sense than renting. Wanna hear 'em?

Contact me here! 

Miriam Odegard, Broker/Sales Director, Herg Group Indianapolis

Keller Williams Realty 

8555 North River Road, Suite 200

Indianapolis, IN 46240

text/mobile:  (317) 220-5397