Buying a home is a big decision and if you’re a renter buying a home may very well be on the horizon. Renting seems like a reasonable choice, especially for new families, those starting careers, or those moving to a new town, but does buying a home make sense for everyone and when does buying a home make more sense than renting?
Space Upgrades May be More Affordable
When it comes to renting, you’re often hamstrung by the factors that affect your landlord or property manager. In most instances, landlords will have mortgages, insurance, and other fixed costs associated with their properties, and some may factor in utilities as part of their rent. Knowing that, as a renter, you’re paying for your landlord’s overhead plus profit on the rental of their property.
All that to say, if you look at your rental, whether it be an apartment or a small home, on a price-per-square-foot basis you may be able to afford a larger home for far less by that measure. Even if you pay a similar per-square-foot rate for a home you own, you’re likely to spend less overall than you would as a renter.
Rent Can Often Cost More Than Buying
Landlords and property managers rent their property as a way to drive income as we’ve already mentioned. As a result, you’re likely to pay more for the home you’re renting than if you were to pay for the home with a mortgage. This is fairly common as landlords are very keen on what the value of their property is and what its value in the marketplace can be.
In many cases, landlords have the right to increase rental rates between leases which can cost you quite a bit of money over a 5 or 10-year span of renting. On the other hand, purchasing in most cases will fix your monthly “rent” in the form of a mortgage for 15, 20, or 30 years. Naturally, as property taxes change and increase, your bottom line may change slightly year-over-year, but by and large, the amount you pay for your mortgage (principal and interest) will stay the same and likely will be less expensive than a comparable rental.
Owning Boosts Your Personal Finances
Despite the fact that most newer homeowners will likely get a mortgage to pay for their new home purchase, buying a home is actually a major boost to your personal finances. It’s important to shift your mindset of a home purchase from a “debt” to an “investment”. Buying a home is an investment and one of the few that appreciates in value despite exterior market conditions.
Primarily, though, purchasing a house gives you an asset that has value far beyond anything else you’ll likely ever own. In addition, with each payment you make on your mortgage towards your principal, you truly own more and more of your home by way of equity.
If that isn’t enough to convince you that buying is better than renting, as the years go on, your earnings increase, and interest rates on mortgages change, you can have more options with your money and greater flexibility since you have both an asset and a liquid investment instrument. Look at buying a home as more of an investment with asset security and less of an expenditure and debt obligation and you can start to see greater value in owning a home.