Differences Between Renting and Owning
While renting might be an only option for some want-to-be buyers in today’s market, there are downfalls to this. Renting is not necessarily a bad thing, however, renters tend to miss out on some of the most important aspects of homeownership. Renting versus owning comes with a slew of differences, and most of them favor homeowners. In fact, even when renting, the homeowner is still being favored, even though it is not you. Here are the differences of renting and owning your home, and why you should strive for homeownership.
Building Your Landlord’s Wealth
When you are renting, you typically forget about the perks of homeownership. This could be caused by many reasons, including a glaring one: you have never owned a home. For those who do not know any better, they may think that renting is a solid, more affordable choice compared to owning. However, this is not particularly true. When you rent, you are building a homeowner’s wealth. Whose equity are you building, you might ask? Well, your landlords.
While you are paying your rent, your landlord is using your deposits to build his wealth. Over time, the more you do this for you landlord, the wealthier they get. Once they do this enough, they often find more and more rentals. They continue to compound their wealth through homeownership, while you lose your money. However, when you own a home, you build your own equity and wealth. When building your equity, you are able to grow your wealth while having the non-financial benefits of homeownership as well.
Differences Between Renting And Owning Payments
When renting, you are also a subject to the economic changes in real estate. As we have all heard by now, real estate prices have increased dramatically. News flash, these prices will be pushed onto renters as well. In fact, rents will probably outpace home price increases in the coming years. In general, rents are raised at the end of each lease period to keep up with the increased cost of living.
When you are a homeowner, however, you do not have to worry about your payments increasing. In fact, one of the biggest reasons that real estate is a hedge against inflation is because of this. When you buy a home, your monthly payment is locked in for the term of the loan. That means home prices could increase by 200% in 15 years, yet you still pay your same monthly payment. This actually happened to many homeowners over the last 15 years in certain markets.
Rental Appreciation Vs Home Price Appreciation
What many renters do not realize is that when rents increase, their buying power decreases. On a month to month scale, you will be committing more of your income to rents. When rents increase, other aspects of daily life such as food tend to increase too. This makes it harder to afford the increase of cost of living when wages do not increase the same as rents. When you own your home, you are locked in and home appreciation actually benefits you. As a renter, rent appreciation hurts you and your affordability. However, for homeowners, they get to reap the benefits of positive equity gains. Homeowners also have the benefit of actually owning an asset that is steady and has increased in most instances besides global recessions.
As rents continue to rise, it makes it even harder to save money. Many renters get stuck in a loop of renting because they are unable to save. As rents increase by 10-20%, your monthly allocation to living increases. It becomes harder to save money when you are forced to pay more to live. For homeowners, however, you gain something called equity. This equity is essentially a savings account, as you are able to get back your monthly payments and any positive equity. Homeownership is affordable, and often times the best solution when it comes to living. Many people believe they cannot buy a home, but there is many market where monthly mortgage payments are cheaper than rents.