According to ipropertymanagement.com, 36% of American’s households rent their homes. Approximately 41% of renters spend more than 35% of their income on rent and most renters are under 45 years old with a college degree. When asked, 1 out of 5 millennials say they feel they will never be able to afford a home. It is often argued that renting is a waste of money. You cannot sell your asset (home) to get your money back.
On the other hand, you have recent college grads buying homes as soon as possible. These people are in a hurry to build equity, settle down, and live the American Dream. It is often said that the American dream is to own a home, raise a family, and make a ton of money. On average, home owners spend less than 30% of their income on their mortgage but pay more in taxes, homeowners insurance, and maintenance.
The Case For Renting
What rent really pays for is a worry free environment where the landlord has more home maintenance responsibilities than the tenant. Renting can be for you if you move around every few years or if you are a career focused individual who works long hours. Renting also gives you the opportunity to get to know different areas and learn what you want in a home or neighborhood. In summary, renting can prepare you for a smarter home purchase when and if you decide to purchase a home. Whether it’s getting married, having kids, or getting a new job, those who buy homes early quickly find out that their home no longer works for them as their needs change. This could result in spending lots of extra money in closing costs, mortgage interest, and renovations as you move from home to home. This is where renting could save you money.
While I just discussed how renting can be better for young career focused professionals, it could also be better for those in the 55+ community. Many 55+ communities are HOA communities where homeowners don’t need to care for grass, outside maintenance, or snow removal. Renting an apartment is the same but usually includes an elevator and sometimes, an apartment attendant at a front desk. This is more attractive to the older generation than living alone in a big 3 bedroom house.
The Case For Buying
Homeownership gives you freedom (excluding HOA communities) to do what you want with your property. You own a piece of land and you have more privacy. You will also have more responsibilities. You need to maintain the exterior of your home and worry about replacing the roof and/or siding every 10-15 years. You also need to cut the grass, rake the leaves, and shovel your own snow. This is the cost you pay to have extra space and flexibility to grow your family. The biggest benefit of buying is that you will done day finish buying the house. That means no more mortgage payments. Unfortunately most homeowners don’t apply to this benefit because they keep upgrading to larger homes, forcing their 15 or 30 year mortgages to reset. Most people never finish paying off their home or they will finish paying off their home near retirement.
Summary
In reality, it depends on your situation, goals, and age. I believe that for most people, renting makes sense until you settle down into a career and city that you like. Personally, I rented for 5 years in 4 different cities before I purchased my first house. Just four years later, I sold my first house and bought my second house in an HOA community bridging the gap between apartment living and homeownership. My HOA fee of $155 per month took care of the outside maintenance of my property. When I moved in 2019, I had planned to pay off my house early. Using Velocity Banking, I am on track to finish paying off my mortgage in less than 7 years! If you are interested in learning how I use Velocity Banking, subscribe here and follow my mortgage pay off journey here.
