What does building assets have anything to do with homeownership vs. renting? It turns out, quite a lot. Here are a few things to keep in mind.
Homeownership vs Renting: A Home is Your Biggest Asset
For most homeowners, their home is their biggest asset. That’s because it is something they have been investing money into for years. They needed a place to live, so they decided to purchase something so it could be theirs one day.
That doesn’t mean purchasing this asset came without costs. Things such as interest on the mortgage and maintenance costs add up, so there is still a lot of money that ends up in other people’s pockets instead of being equity in your home. But it’s still better than nothing, and interest expenses go down over time as you pay off the balance of the loan.
Renters don’t have that luxury. All of the money they spend goes into helping their landlord pay their mortgage and purchase the property. The renter isn’t building an asset, so they are arguably losing a chance to build assets. Even though it may not be as comfortable, many people choose to live in a smaller property they can comfortably afford than rent. That way they can keep building assets, even if it is a small home.
There are other things to consider though.
Renting vs. Ownership: Rental Costs Can Go Up Over Time
Another disadvantage of renting vs. buying is the costs of renting a property tend to go up over time. It’s not uncommon for landlords to increase the rent each year. They may not increase it by much, but even an increase of just $30 a month means you’re out $360 over the course of the year.
Owning a home is a different scenario. Your monthly payment is locked in, assuming you don’t have a mortgage with a variable interest rate. You know how much money you’ll need to spend each month until the mortgage is completely paid off, making it easier to manage your budget.
Because rent never goes up, you’ll have more money to invest in other assets.
Homeownership vs. Renting: Buying Other Assets
Over time, you save money by owning a home because your rent isn’t constantly going up. That extra money in your pocket can go into buying other assets and further increasing your wealth.
One example is stocks. You can choose to invest your saved money in the stock market directly or a good mutual fund. The stock market historically has averaged growth of about 10% before inflation.
This gives you some diversity, as now you have more assets available. All of these assets are working for you to help improve your financial position as a whole.
The flip side of the coin is that renting has fewer “surprises” come up, so some argue that renters have more money to invest in stocks. For example a renter doesn’t have to pay maintenance costs on the home. But this still needs to be balanced with the fact that each year, your rent will probably go up.
So in the debate of homeownership vs. renting, which one is for you? For more personalized guidance, shoot us an email at Team@RyanGrantTeam.com or call us at (949)-651-6300. We look forward to hearing from you.