My wife and I are looking to purchase our first home. We have been pre-approved and tonight for the very first time we are looking at some homes that are on the market. This has led me to reflect on some of the advantages I currently have in renting vs. some of the advantages I will gain by owning a home.
Advantages of Owning a Home
- Locking in at a low interest rate
The main reason I want to buy a house right now is because it’s a great time to invest in a home if you are currently a renter. I strongly believe that rates should be a lot higher than they currently are. Eventually they are going to have to be raised, it’s just a matter of when. Locking in at a 3.5-4.25% rate now is an incredible financial advantage.
- Housing prices are low
We can talk all day about whether housing prices are going to start rising quickly or that they still have a ways to go before they hit bottom, but overall housing prices are low. Even if the value of the home I Buy dropped 10%, it likely won’t fall too much further. If there was ever a good time to buy, it’s now.
- Building equity instead of paying rent
This may be the biggest advantage that people see in owning a home. I hear people say all the time, “we’d rather have our own place so that we can start building equity instead of throwing away our money on rent.” Unfortunately, equity takes longer to build than most think. For the first five years, a large percentage of the payments go towards interest instead of equity. Owning a home and building equity is definitely a major advantage, but it’s important to keep it in perspective.
Advantages of Renting
- You are not stuck with a mortgage
This is kind of a “duh” statement, but when you rent you are not locked into a 30-year loan. If you are unhappy with where you are, you can move. If you get a job somewhere else you can move without having to either sell your house or find people to rent it. You may not be gaining any equity in a house, but you also aren’t locked in and exposed to the downside like people who own a home.
- Repairs are not your responsibility
While it may be annoying when a garbage disposal, dishwasher, air conditioner, etc. break, when you live in an apartment usually all it takes is a call or email to maintenance and they will come and fix it. When you own a home, you may have to shell out thousands of dollars to pay for repairs and replacement.
- Less to maintain
This goes along with not having to make your own repairs, but a house is a lot more maintenance. At an apartment complex, you don’t have to worry about mowing the lawn, cleaning out the gutters, or when to replace the carpet. It’s all built into your rent. When you own a home, you are the one who is out there on a ladder cleaning the gutters and mowing the lawn (unless you contract it out, of course). Also, at an apartment the max number of bedrooms you will have is usually two. If you own a home you will have many more rooms to clean and maintain, and that takes time and effort.
This is hardly an exhaustive list, but I think it captures some of the major ones that are on my mind right now. What other advantages are there to owning a home? What about renting?
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I think the biggest advantages of renting are definitely mobility and the fact you don’t have to pay to maintain the house much or fix AC units if they break. Home ownership can be right if you are in the right circumstances but I wouldn’t plan on making it an investment :)
@Money Life and More The fact is that interest rates on home mortgages are almost certainly below the inflation rate. Combine that with the fact that interest rates are manipulated by the Fed and should be at least double what they are now (if not higher), I have yet to hear someone make a valid counterargument against a house being a good investment right now. You could (maybe) argue that the housing market is going to fall further, but you would have to argue it’s going to fall a LOT further to offset the gains made from locking in at an interest rate that is artificially low. I think a lot of people fail to view a house purchase as an investment, when really it’s the biggest investment that many people will make.
@DC @ Young Adult Money I think that if you add up all of the additional costs of home ownership that you wouldn’t have to pay when you rented it makes it a lot closer than most think. Yes you “make money” because you bought at 100,000 and sold at 150,000 but once you consider the interest and the nonmortgage money you put into the house the stock market may have worked out better. I could see how it can be argued as an investment but I won’t know my answer on it until I eventually sell a house and look at the numbers :)
@Money Life and More The interest is below inflation rate, so you actually gain money. You are still trying to argue that that is an expense when really it’s an investment gain. I also understand you can make gains in the stock market, but you have to subtract any equity you would have made in a house and any appreciation in home value.