Have you heard or seen reports in the news recently saying that it’s better to rent right now than it is to own your home? Before you let that news impact your decisions, you should understand the ideology these claims are based on.
Often times, these reports are assuming things that aren’t realistic for the average household. For example, the methodology behind one of those reports says that renting is the smarter financial option because of the opportunity to invest money elsewhere. It assumes renters take the money they’d spend on costs tied to buying a home and put it in an investment portfolio.
But here’s the reality – most people who rent aren’t making those investments. Ken Johnson, Co-Author of the BH&J National Price-to-Rent Index, explains:
“One of the difficulties with the rent and reinvest model is many people . . . simply rent and spend the difference. . . . That’s wealth destroying.”
The reason homeownership is one of the best investments you can make is the wealth it helps you build. That’s why there’s a significant difference between the median net worth of the average homeowner and the average renter (see graph below from the Federal Reserve):
Before you renew your rental agreement, think about the opportunity to build wealth that homeownership provides. Sure, with a mortgage you will pay a percent in interest but you will be building equity. However, your monthly rental is basically a 100% interest payment and your rent typically increases each year. Your mortgage does not. That my friend is food for thought.
Feel free to contact me if you have any real estate questions. I am here to help you, and I love helping people.
All my best,
Karen Alsheimer®
