We have been conditioned to believe that homeownership is a necessary step on the path to wealth, happiness, and success in modern American life. Is this really true, though? Home ownership carries a large amount of risk and upfront cost and has been shown to be less of a sure-thing investment than was previously believed. We live in a time just after the largest domestic housing market crash in history, leaving many wondering if the cons of homeownership may be larger than historically believed. If you are considering ownership as a future investment for your family, be sure to check out some well-known pros enjoyed by long-term renters:
Most homeowners will tell you that the tough part is affording the home and down payment, not finding a home to buy. The fact of the matter is that homes are not uncommon; in fact, there are plenty to choose from. When looking to invest in anything, it is typically not advised to invest in something that is widely and readily available, yet we are told over and over that home ownership is crucial to prevent “throwing away money” on rental homes.
Numbers Don’t Lie
We commonly hear that to rent is to “throw away money,” and that the key to building wealth lies in the equity gained through home ownership. Yet, when we look at the numbers, it doesn’t seem quite so cut and dry. Not only is renting often much less expensive than home ownership after taxes, expenses, and maintenance are factored in, but homeowners are actually earning less in equity than they imagine they will. For instance, if you borrow 200,000 dollars at four percent interest on a 30 year mortgage, an average loan and interest amount, you will pay the bank over 134,000 dollars in interest alone over the course of your payments. It is unlikely that your home will gain 134,000 dollars in value over any maintenance and further investment costs, making it a pretty poor investment in terms of equity gained.
Worse still, someone considering a switch from renting to homeownership is advised to save up 20% of a home’s value for a down payment. In the above 200,000 dollar home, that would mean saving 40,000 dollars. For most Americans, this is a huge sum of money that should be spent wisely. Consider instead that you could invest that 40,000 dollars into an asset that will appreciate, and suddenly the thought of losing money in interest payments doesn’t seem quite so reassuring.
Invest Your Way
Any investment you can drive or live in is probably not going to bear you any sort of positive return. If you are looking to build your wealth for the future, consider a rental paired with smart investments in an asset that will not appreciate or cost you time and money to enjoy. Check out our available East Point rental properties, and keep your money working for you.