I rented for three years before I realized that if I bought a home in the neighborhood where I was renting, my monthly payment would actually be lower than my monthly rental payment. On top of that, there were other additional benefits I’ll talk about here.
When renting, I paid $1450 per month whereas my mortgage payment is about $1197 (that includes property taxes but does not include a $200 a month Home Owners Association (HOA) fee for snow removal, building maintenance, landscaping, etc.) So even with my HOA fee it comes out to about $1400.
You might be thinking, “but that’s only a $50 dollar difference, that’s not so much.” Well, that’s true, however, there’s a big reason to own if you can. It’s called equity.
EQUITY
Let’s consider two scenarios: one in which you rent for $1500 per month and one in which you pay a mortgage + taxes, etc for 1500 a month to own. Let’s say you stay at either of these properties for 15 years. At the end of the 15 years, you will have paid $22,500. However, with your rental, you will have nothing to show for the money spent. However, if you were paying toward a mortgage each month, that $22,500 would have gone toward your loan amount. Thus you own a percentage of the property in proportion to what you’ve paid on the loan. That means that when you decide you want to move somewhere else, you will get a portion of that money back when the property is sold. Specifically, whatever portion of that $22,500 was used to pay off the principal you will get back one day. This is what sold me on buying a home last year when I realized I would never see my rental money ever again.
MARKET EQUITY
A second part to equity is related to the housing market. The housing market fluctuates up and down just like the stock market. In 2007-2008 there was a crash and home prices plummeted. That means that if you bought a house just before the crash in 2007 for $300,000, your home may have been worth $200,000 shortly after. Sucks right? But this also works in reverse. I bought my condo for $147,000 last October. The market is on the upswing now and I’ve also put a lot of work into the unit. Today, the property would likely sell between $170,000 and $185,000. So who gets that money from the increase? I do (when I decide to sell.)
INVESTING EQUITY
We call this instant equity, and it is the concept that is used in home “flipping” in which someone buys a fixer-upper for let’s say $50,000 and puts $50,000 of work into it and then sells it for $150,000 for a $50,000 net profit. The same concept is used for a more long term investment. Many investors bought up handfuls of homes just after the housing crash of 2007-2008, not for flips but as long term investments. Why? Because they knew the prices would rebound (and are doing so now). Once the market peaks, they will sell off their investments and make a huge profit. The key is timing it before the next crash, but in the meantime they will have been renting the properties out to people, likely for higher than the cost of their monthly mortgage payment (if they have one.) So these investors are doing quite well!
I hope this has helped you understand some of the aspects of ownership vs renting. It was longer than I had planned. Oh well. Have a great day!