10 best reasons why buying a home is better than renting a house.
There is always a debate on whether buying a home is better than renting a house, apartment or townhome. Of course, I am not going to tell you they both don’t have their upsides and downsides. Obviously, each option has their positive and negative aspects, but which one really helps you most in the long run? There are plenty of different variables to consider, but today we are going to look at why buying a home is better than renting a house!
1) Financial Gain
Let’s start with the obvious benefit for owning your own home rather than renting. When you purchase your home, it may seem like you’re separating with a large amount of your savings, but is this true? In most cases, it’s not, and here’s why. Picture this, when you own your property, you are now in possession of an appreciating asset in your name. Unlike your car and many other material possessions, your home typically appreciates in value over time. In fact according to the U.S. Census Bureau and the chart below, you’ll see the housing prices in the U.S. have gradually risen about 5% year over year since 1965.
Although, from 2008 – 2011 the housing recession caused a dip in the gains of housing prices, homeowners who weren’t forced to sell didn’t lose any money. As you can see in the chart the housing market has recovered and is back on the rise. It’s difficult to find any other investments that show consistent gains like these year over year for these extended lengths.
2) Consistent Payments
Renting a house:
What’s the one thing we all hate about paying rent, other than paying rent? It’s always increasing! That’s right, rent payments hardly ever stay the same from one year to the next, and this is due to the housing markets increasing as well. When the value of a home goes up, and especially when there is a housing shortage, landlords know they can increase rent. They also need to increase rent to keep up with inflation. As their bills get to be more expensive, those increases roll right down to the renters. This has become a major issue in the last few years in places like Denver, Colorado, Austin, Texas, and Nashville, Tennessee. These areas have seen an overwhelming growth in population; causing housing supplies to dwindle and rental properties to become more coveted.
Owning a home:
When you are locked into a fixed mortgage rate, your mortgage payment doesn’t change unless you opt to change it thru something like a re-finance. This means year over year you know exactly what your payment is going to be and can plan accordingly. This also means, as markets become more popular and housing prices increase, your payment remains the same. The factors that may change your payment are your property taxes and insurance payments. Meaning, they could increase slightly or possibly decrease if you’re diligent about shopping your insurance around. Overall, the stability of your mortgage payment gives you a huge advantage over having a rent payment.
Another huge aspect to your financial gain of owning a home rather than renting a house, is the equity you gain. Equity is simple, it’s the market value of your home minus what you still owe on the home to your lender. For example, your house is valued at $300,000 and you still owe $250,000 on the loan; your equity is $50,000! How do you increase this equity? Simple, you just make your payments on the home and with every payment you make your outstanding loan amount goes down. You may also make some improvements to your property and increase the market value to widen that gap. Rather than paying your landlord’s mortgage down and increasing their equity, you’re doing it for yourself.
4) True Cost of Renting a House
Let’s compare the true cost of renting versus the true cost of homeownership. See the chart, image, below for a two year comparison of the total cost of renting to 2 years of home ownership. Allow me to preface this by saying, these numbers are not exact for every home owner or purchase.
The first model compares renting a house in Livingston County Michigan to purchasing a $220,000 home. The numbers are simply here to represent a realistic look at the overall benefit of owning a home. For this model I’ve used the average rent cost in the area, the average homeowners insurance premium and the average property tax for the area.
The second model compares the national average for rent to purchasing a $350,000 home. I’ve chosen the $350,000 price point as it is a realistic figure for a decent 3 bed 2 bath house in most U.S. cities.
Please keep a few things in mind here. The chart figures do not account for utilities and maintenance costs. Also, the market gain of 3% year over year is a modest estimate. The national average over the last 100 years is closer to 5% gain, but it’s better to underestimate than over estimate appreciation of an asset.
As mentioned before, you’ve got the ability to make improvements to your property when you are the owner. When you’re a renter, you are limited on what you can do to the property by what your landlord will approve of. Say you want to add a storage shed to increase your storage area, if your landlord doesn’t approve you’re stuck; what they say goes. When you’re the homeowner, the only entities who can limit your construction of a storage shed may be your homeowners association, and city or county covenants. Long story short, if you want the freedom to make changes to your living space whenever you’d like, become a homeowner rather than renting a house.
Security of a home can mean a lot of things, but in this sense I’m referring to knowing where you’re going to live. One slightly unsettling thing about renting a house is you only have the lease period to ensure you’re going to have that place to live. Often times a lease is written for 6 months – 1 year of possession, and after that year things are a bit unknown. Landlords are able to do what they would like with their property, and this means selling it, increasing rents, changing rules and terms, etc. So, you’re not always guaranteed to have a suitable place to live. I don’t know about you, but I like to have comfort in knowing I’m not going to have to give up a pet to keep living in my home.
Maybe this one should have been first on the list, but being down here doesn’t make having a landlord any less of an issue. Of course, not all landlords are difficult to deal with, but that doesn’t mean they are all great people or companies either. In fact, being in real estate I have heard hundreds if not thousands of complaints and horror stories regarding landlords. From slumlords to even the best landlords, it doesn’t feel very comforting having to rely on someone else to have a comfortable place to live. Especially when you may be needing something fixed or some lenience on a rent payment or two. Keep in mind not all landlords are people, and some of them are corporate entities who have no connection to you as a person or a face to deal with. When you own a home, you know what to expect and who to blame if an issue arises.
8) D.I.Y. Home Projects
I’m pretty sure everybody has seen home improvement shows on HGTV and thought, “I’d like to do that!” When you’re a home owner, you get to act upon those ideas. I know we talked about the difficulties when you’re renting a house, but what about the joy you get when you own a home? Home improvement projects are a wonderful way to spend time with your significant other or feel a sense of accomplishment for yourself. There is just something fulfilling about taking on a new project around the house and getting to bask in your success upon completion. Definitely a feeling you miss out on when renting a house and having to put the project on the “When I own my own home,” bucket list.
9) Creating Memories
To continue on the positives of owning a home path, think of all the memories you’ll be able to create in your home you own. It’s not very often I hear about people being sad or having a hard time leaving the house they’re renting. To think of it, I don’t think I’ve ever heard of someone wanting to take their family to see the house they used to rent. Those moments are typically reserved for the house you’ve owned and had time to build lasting memories in. Most homeowners do move on from their first home, but it’s generally after owning the home for about 4-10 years. Not many people rent a home for more than about 3 years on average (yes, I know there are people who have been renting the same place for 30 years). The difference in the amount of time in one place is pretty significant in the number and quality of memories made.
10) Creating Memories
Obviously, interacting within your community is not reserved for homeowners rather than renters. However, studies have shown areas with primarily owner occupied housing tends to have more community involvement and retains housing values at a much higher rate. Think about it, when you and your neighbors have a huge investments in your homes, you’re more likely to take care of your surroundings. This is often why we see high rental volume rental areas degrade quicker and have a higher number of distressed properties.
What I am trying to get at here is, homeownership is typically a better option than renting a house or apartment from a financial standpoint. Of course, every individual has different circumstances and needs, and renting may fit better for your own scenario. This is especially true if you’re not planning to live in an area for more than 2 years. Also, if you live a depressed real estate market. Please take this for what it’s worth and apply it to your personal situation. If you’re considering purchasing Michigan real estate, contact me if you have questions or need help. I have close relationships with a few lenders who can help you compare your financial options between buying and renting.