Renters are often in a quandary as to whether it makes sense to
continue renting or buy a home. Buying a home makes more sense,
particularly when taking a long-term view. Yes, even in the current hot
real estate market.
Renting – Advantages
Renting can have a few advantages depending on the part of the country
you live in. The primary advantage is your monthly rent payment may be
less than an equivalent mortgage. A secondary advantage is the fact
that maintenance and improvements to the property are the
responsibility of the landlord. Still, these advantages pale in
comparison to the disadvantages of renting.
Renting – Disadvantages
The disadvantages of renting are significant. If you have any
opportunity to purchase a home or condominium, it almost always makes
sense to do so.
The biggest disadvantage of renting is the loss of value. Assume you
rent a residence for $1,000 a month and you live in the residence for
two years. You will have paid a total of $24,000 in rent, a pure
expenditure. The $24,000 is simply gone and you will have nothing to
show for it other than the time you spent in the home. Compare this to
what your landlord has gained.
Rent payments are closely aligned with a landlord’s mortgage payment.
Using the above example, lets assume your $1,000 rent exactly equals
the mortgage payment. For two years, you have indirectly paid the
landlord’s mortgage, helping them build equity in the house by paying
down the loan. In addition, the landlord has benefited from the
appreciation of the property.
By appreciation, I simply mean the amount of increase in the value of
the house. If the rental appreciated $20,000 in two years, the landlord
has received a windfall. They may have seen a gain of $24,000 in
appreciation and payments lowering the mortgage. As a renter, you have
made this all possible. The landlord no doubt would like to thank you.
Now, what would have happened if you had purchased a similar home with
similar financial figures? You would have seen an increase in YOUR
wealth of $24,000, not the landlord’s wealth. If you renting, these
figures should make your teeth grind.
If you are renting, you should be out shopping for your own property.
After all, isn’t it time to make your money work for you, not a
landlord?
