There are many times in life when it makes sense to rent the place you live in, such as for a temporary job assignment. However, over the years, owning real estate has proven to be the greatest wealth builder for most Americans.
Advantages of renting
• More mobile in the event of a job or life change
• Landlord typically is responsible for many repairs
Advantages of owning
• Creates “home base” stability as a place to live
• Creates “home base” financial stability
• Tax deductions for mortgage interest and real estate taxes
• Amortizing mortgage creates equity build up
• History of market value appreciation
• On a fixed rate mortgage, the principal and interest payment do not increase like rent
• Taxes and homeowner’s insurance typically see increases
• You can rent out the home to others if you need to leave town because of a job change
The Federal Reserve does a study on Homeowner Wealth vs. Renter Wealth. Regardless of owning or renting, the U.S. median household net worth was $121,700 in September 2020. When broken down into owning vs. renting groups, the results are staggering. In 2019, American homeowners had a median net worth of $255,000 while renters had a median net worth of $6,300. The results show, over time, that homeowners possess significantly more wealth than renters. In fact, homeowners usually have 40 times more wealth than renters do!
You can argue that a renter can invest in assets other than real estate to create wealth. That’s true, but for most people, a home acts as an automatic wealth builder in appreciating markets. The housing market across the nation certainly can have ups and downs but in the long term, the value trend tracks upwards.
If a renter has savvy financial skills or hires someone who does, it certainly is a possibility to create wealth without owning real estate.
The best of both worlds: renting AND owning
The bottom line is that for most people, it is simply better to own real estate – and the property owned doesn’t necessarily need to be the place you live.
Let’s say you own a home and you’re offered a job for one year in a new location. Renting in the new location is probably the easiest answer while renting out your current home during the time you are away. Renting your current home while you are away sounds like a hassle, but in most communities, there are property managers to help make the process go smoothly.
Another hybrid option is to own a 2-, 3-, or 4-unit property. Multi-unit properties can be purchased in some locations with FHA financing as an owner occupant with only 3.5% down. You can live in one unit and rent the others. Down the road, this will provide quite a bit of flexibility. You can keep the property as an investment when you move on to another home. You could also keep one of the units open for yourself while you are in the area and rent it out when you need to go live somewhere else.
Buying a home rather than renting in college
In any college town, the majority of students will live in a dorm their first year, then move to an off-campus rental home. However, most college towns across the country have strong real estate markets. In an appreciating market, buying a home while attending college, instead of renting, almost always turns out to be an equity builder.
Is it better to own or rent?
Whether to own or rent is better depends on many factors. Your Realtor® can work hand in hand with your mortgage lender and financial planner in analyzing all the factors to determine what would be best for you.
By Duane Duggan. Duane has been a Realtor for RE/MAX of Boulder in Colorado since 1982 and has facilitated over 2,500 transactions over his career, the vast majority from repeat and referred clients. He has been awarded two of the highest honors bestowed by RE/MAX International: The Lifetime Achievement Award and the Circle of Legends Award. Living the life of a Realtor and being immersed in real estate led to the inception of his book, Realtor for Life. For questions, e-mail DuaneDuggan@boulderco.com, call 303.441.5611 or visit boulderco.com.