The case for renting is made quite easily made when looking at the monthly rent versus what your monthly payment will be if you take out a mortgage. At least this is the current popular wisdom. Let’s take a closer look.
Renting
When you rent, you know exactly what you will pay each and every month. If something breaks or stops working, you call the owner or their property manager and ask them t take care of the problem. What could be better? The potential downside is that your rent will change over time even if you sign a lease as that lease will eventually expire. When it does, the landlord can increase the rent. Needless to say, if you are renting month-to-month, the landlord can raise the rent with notice. You may or may not have a responsive landlord, so repairs may or may not happen promptly or at all. Last but not least, if the owner decides to sell the property or move in, you must move out.
Owning
Once you meet with a lender, you will know what your monthly payment will be for the home you will buy. Even if initially it is more than renting, renting will eventually come to cost at least as much as owning. Why? Because landlords know full well that if it is cheaper to rent, there will be more potential renters than potential buyers. This excess of renters encourages landlords to raise rents as much as the market will bear. They bought the property with the intention of creating income for themselves. They are not about to pass up a chance to make more.
So owners see their monthly payment remain steady. Over the years renters will see price increases that exceed what an owner is paying. As your income increases due to everything from inflation adjustments to promotions to new jobs, an owner’s cost of housing will decrease as a proportion of their income. Renters will not see this passive gain.
When you move, you will find that the home is worth more and you get to pocket the difference between what you still owe on the home and the price it sells for. Yes, there will be selling expenses but NO taxes on the first $250,000 of profit! If married, you get a combined $500,000 tax-free if you are filing jointly!
Last but not least, when you retire as an owner you can explore a number of ways to have the home supplement your retirement income without having to sell it and move out.
But what about the renter? They can look back at all the rent they paid over the decades and realize how incredibly generous they have been to their landlord. Sad but true.
There are programs to help people become owners even when they lack the down payment for the mortgage. You can google “down payment assistance” or simply ask me for lenders I work with. I’m at 760 622 5087 or [email protected]
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