Build Wealth Through Home-Ownership: Renting Won’t Cut It
Renting rather than owning a home is the right thing for some people in various situations. However, if you’re renting because you don’t think you have the funds to purchase a home, let me tell you a story. A few years ago I got a call from a woman who found my website and thought I could help her find another home to rent as her lease was expiring and the landlord wanted to sell rather than renew. She laid out the challenges the couple had been having finding another rental. Two dogs, one a pit bull weighing over 70 pounds, and rising rents seemed to knock every possibility off the table.
As we got to talking, she mentioned that she and her partner were tired of renting and she really wished they could purchase a home. “Why not?”, I asked. “We don’t have the cash to make a 20% downpayment and I’m not sure our credit is good enough to buy a home”, she answered. I knew then that much of what she believed about buying a home was based upon myths, not facts and that they were potentially missing an opportunity to build wealth through home ownership. I asked her to humor me and contact a lender that could assess her situation and give her reliable information to help them make an informed decision about renting vs. owning. A couple of months later, they closed on a lovely home in Chandler priced at $245,000, bought with the help of a downpayment assistance program, at a great interest rate. Not only that, but in two years, they have already seen their home value appreciate by over 6%. It is now valued at $262,000. The couple, their pit bull and their chihuahua are living happily ever after. The End.
You can find many reasons to own rather than rent a home:
- The home is yours to decorate, remodel, or improve as you wish
- Pets? Not a problem unless you intend to violate a city ordinance
- The tax advantages of home-ownership make it less expensive than your monthly mortgage payment.
- The equity you gain is not only a good investment, it is actually an important part of a long term strategy for building wealth.
The graph above shows the difference between renters and home-owners, in wealth attained over the course of the past 18 years. While renters wealth is flat (and low), homeowners have grown their wealth significantly. In fact, despite the housing crash of 2008, the National Association of Realtors shows how purchasing home now makes even more sense than it did in 2000, well before the housing crash.
With interest rates being significantly below the 50 year average, the availability of downpayment assistance programs, the need for only 3.5% down, and the long term appreciation you will realize, renting can seem like a bad idea. Unless your situation makes renting a viable option, it pays to consider the possibility of purchasing a home. As long as your making a sizable rent payment every month, why not pay off your own mortgage instead of your landlords?