Owning a home is a pain! At least, when we rent a home, if something breaks somebody else gets to fix it, right? And when we want to move, we don’t have to worry about selling it, so we can go whenever, wherever, without a lot of hassle (as long as it’s at the end of our lease). And besides, it’s cheap… er, right?
Well, it is true that it’s less of a hassle from a maintenance standpoint. And it is also true that there are times when selling a home is easier than other times, which I’ll address in more detail. As for the monthly expense of renting versus buying, that is where there is a very common misunderstanding. As long as interest rates stay anywhere near where they are now, it is more likely that a mortgage payment, including taxes, will come out to less than the rent payment on the same home, especially when your mortgage interest tax deduction is applied.
According to a New York Times calculator, if you can rent a $450,000 house for less than $1,513, you should. Wait. What?! In our area, $1,500 per month gets a two-bed room condo! Hmm. Now, as to the expense of maintaining a home that you own, this is where the argument to rent seems to hold more water. One needs a pen and paper here—and long-term vision. When you purchase a home, you’re making an investment. And I will speak only to long-term investing, as that’s what home ownership is, ultimately. Not that many haven’t made a quick buck turning homes, but that’s an entirely different, and much riskier, endeavor. You will have a down payment and other costs in the purchasing process. You should know, when you’re purchasing a home, if there are any imminent maintenance expenses in the short term including the construction repair, water damage (find details at https://mdlrestorationinc.com/water-damage-restoration/) and the like; and consider that also as part of your initial investment. You can also estimate and budget for expected ongoing maintenance costs such as exterior paint and the roof (could be a real hustle so one needs some good professional help, as stated at https://www.rooftopservices.com/residential-roofing/), appliances and mechanicals that generally have a predictable lifespan.
If you rent, you need not worry about any of this. Of course, you know renting a home is not an investment, but rather, you are supplying the return on someone else’s investment. There are a lot of trade-offs in consideration here, after all. So now that you have numbers, you can compare between the cost of owning and the cost of renting, and evaluate your ‘investment.’ When one makes an investment, it is with a reasonable expectation of a return on investment, or ROI, as it’s known to entrepreneurs. Yes, you could rent and invest those surplus dollars elsewhere, but you would have to be very savvy (and sometimes downright lucky) to have a lot of confidence investing in stocks, bonds, commodities or even mutual funds—most would agree. I know. I’ve been on that ride. With success and failure. One thing I know about real estate, even in a crash, it never devalues to zero. I have also not profited on every house I’ve ever owned. And this is where the element of long-term investment is most pronounced.
In the worst real estate recession in my adult life, we saw home values in Denver fall almost 25 percent. That was between 2007 and 2009. I’ve also experienced home values go up 8 percent, 10 percent, even 12 percent in a single year (over 9 percent in 2015). I was certainly happy that I owned my own home and even some investment properties during those years. I wish I could quote you an exact ROI, but I can say with confidence, it is a strong, positive number. According to CaseShiller American, homes went up 1,454 percent since 1964, which is 29 percent per year on average. We had a 29 percent drop nationally between 2007 and 2009, but values have increased now 33 percent since that low point! You can see how the long-term always pays out. But there are other returns that are less easily measured. One of those, I call the investment in “home” rather than merely the investment in a house. It’s about personalizing your home and customizing it. Making permanent changes that serve you and your family to the highest degree. You truly ‘own’ your home. This is where you make your lifelong memories and where you return to recover from the world. I have rented, but I’ve mostly owned, and I must say, my personal R&R (let alone, my ROI) is much greater when I’m in title.
In addition, there are significant studies showing that ‘belonging’ within a community and even more, the contributions made within a community, are significantly greater by those who own their homes than those who are just temporary residents. Now, as for the difficulty of moving whenever you wish, the first thing I would say is that if you expect or desire to move with great frequency, then you might be that one who is best suited to rent. But even owning for a period as short as 3 or 4 years can prove more beneficial in a decent economy. There’s no question that if you need to sell your home and move in a down economy, it is more difficult. Though, many succeed, even in those circumstances, by being very realistic in the process, which means pricing appropriately. Those who have fared the best through the worst of times were strategically prepared, building equity enough to take the relatively small hit usually required in a soft market, or even better, not selling at all and putting a tenant in the property until the market recovers. I was most frustrated during the housing crisis when I saw people walk away from their homes simply because they were temporarily upside-down in value, even while they still needed a place to live and could afford the payments on their houses. Dumb! Today, the ones who rode it out are sitting pretty in their investments. Live and learn.
Wishing you a Happy Home!