5 Reasons It's Better to Own Than Rent

Source: StockMonkeys.com.

I recently wrote an article that explained in detail why thinking of your home as an investment is simply faulty logic. So, by the title of this post, it may seem that I'm contradicting myself. Not so. While I don't advocate considering "investment value" when purchasing a home, there are still plenty of valid reasons to own instead of rent, especially in the current low rate environment. Let's take a look at why homeownership simply makes more sense than renting, especially over a long-term basis.

Reason 1: Mortgages are cheap
Even though rates have spiked about 1% over the past year or so, at a 4.5% interest rate, 30-year mortgages are still very cheap on a historical basis. This is significant because in many cases, it is actually cheaper on a monthly basis to own a home than rent. In the market I live in, $350,000 gets you a relatively basic three-bedroom home, and I live in a hurricane-prone area, so we have to pay flood and windstorm insurances, which brings the total mortgage payment on a $350,000 house to about $2,400. The same house would easily command $2,700 per month in rent.

Reason 2: Your life, your way
Want to get a new family pet? Go for it! Want to landscape your yard, put in a pool, add on another bedroom, or remodel your kitchen? These are some things that are out of the question in virtually any rental situation and can be as easy as applying for a building permit if you own your own home. 

If you're a dog lover, finding an apartment can be a nightmare. Many of my friends who rent their houses are stuck with kitchens that look like something from a 70s TV show, and their landlords seem to be in no rush to update anything. The freedom to make your home truly your own is one of the best reasons to buy a house. 

Reason 3: Credit
This may seem somewhat unimportant, since most people in a position to buy a house already have very good credit. Regardless, a mortgage will certainly report to the credit bureaus, and a rental company will almost certainly not. There are few items on a credit report that demonstrate financial responsibility and general stability in life better than a long history of on-time mortgage payments.

Reason 4: Equity
Having equity that can be tapped into if necessary is a big plus for homeowners. Having equity in your home is not only important to help pay emergency expenses, home improvements, or your kid's college tuition, but simply having the equity available to you makes it much easier to get a loan for almost anything else. If you have, say, $75,000 in home equity, a bank will feel much better loaning you $20,000 to buy a boat than if you were renting an apartment.

Reason 5: Not an investment, but still much better than renting for your financial health
Even though I've said your home is not a good investment, at least in the traditional sense of the word, it is still exponentially better for your long-term financial health than being a lifelong renter. 

Let's say you buy a $200,000 house, and you put $40,000 down. This would make your mortgage payment $810.70 for 30 years at a 4.5% interest rate. At the end of the 30 years, you own the home free and clear, and hopefully it's appreciated significantly in value.

If you pay the same amount in rent, after 30 years, you'll have paid a total of $291,852 in housing payments. This is also a glorified scenario, as rental rates usually rise over time, making your actual total even more. At the end of 30 years, you'll have absolutely nothing to show for all of the money you spent.

So, while owning your home only provides 3%-5% annual returns on a long-term basis, this is still far better than paying out hundreds of thousands of dollars and not building any equity whatsoever. Homeownership is still the way to go!

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  • Report this Comment On December 23, 2013, at 10:22 AM, duuude1 wrote:

    This is a pretty standard "why it's better to buy than rent" article. Couple of comments:

    "Mortgages are cheap"

    - sure historically speaking mortgages are very cheap. But homes are still overpriced. Median homes are still far above the normal 3x median income that has been the historical norm. So paying low rates on overpriced homes - which will eventually return to their normal levels - is a losing overall game - even if you are paying slightly less monthly.

    "Your life, your way"

    - this is the classic rationale of real estate agents who want to sell you something. It is a want, not a need. If you prioritize wants over financial prudence, you deserve whatever happens later in your life.

    "Credit"

    - I've never owned a home and have excellent credit and easily qualify for more home loans than is safe for me or my family.

    "Equity"

    - You gain equity in a depreciating asset. And you are promoting the same attitude of buying bling that got us into trouble the last time.

    "...better than renting for your financial health"

    - For young folks, the first order of priority is career. You want a college education to get a higher base salary, and you want flexibility to move wherever your company or opportunities dictate - salary increases from new positions far outstrip your home value increases. Rent and stay flexible - pay attention to your career first.

    Duuude1

  • Report this Comment On December 26, 2013, at 7:42 AM, jimingersoll wrote:

    Duuude1

    I agree with the writer.

    Mortgages are cheap - I personally expect rates to rise in the coming year and never return to this low level again.

    I would never recommend over paying for anything, a house included and I am not sure which market you are in. Real estate prices are hyper-local and recovery can vary within markets, but overall they have stabilized. In mu opinion they won't drop again unless our economy totally tanks again and unemployment jumps back to 9-10% again.

    Good point on being upward mobile, if that is your career plan and you want to be able to move every couple years ago I would agree you are better off renting.

    I think overall the author hit some good points on why it is a great time to buy. I believe we bottomed out price-wise and interest rates will never be this low again. I am not a realtor by the way.

    Jim

  • Report this Comment On December 26, 2013, at 9:59 AM, loftman wrote:

    there is no one fit scenario. the problem with this article is it assumes u live in your house for 30 years. what happens if you move? then you have to sell your house, correct? how would that have treated your from 2008-2012?

    also the contingent liability of a mortgage on your balance sheet is real - ie it will impact your ability to make real investments, not just a housing choice.

    i've been a developer for the last 20 years & have built hundreds of millions in product. right now i'm a renter because it fits my current need.

  • Report this Comment On December 30, 2013, at 3:16 PM, gravyluvr wrote:

    I've always heard that 7 years is the time frame. If you expect to live in the same house for 7 years it's better to buy than rent.

    That said. It's better to buy and sell if you are stable and looking to stay ahead of the price increases.

    People like myself got screwed by buying in euphoric periods like 2006 but some who bought in 2001 or 1987 will never be talked out of buying as an investment.

    The real question is how fast will the rent/mortgage rise. A simple rent vs. mortgage chart would have been nice to look at in hindsight for me.

    http://blogs.reuters.com/felix-salmon/2012/05/08/chart-of-th...

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