Renting vs Buying

Renting vs Buying

You can’t get rich renting. Landlords get rich and renters stay poor. You are not in the game of building wealth until you own some real estate.

The first landlord you should become is your own

Study after study show that people who own their own homes wind up with an average net worth many times greater than that of those who rent. According to one survey of consumer finance published by the Federal Reserve in January 2003, the average net worth of renters was $4800 vs $171,700 for homeowners. In other words, homeowners were more than 31 times richer than renters.

Even more important than money is the feeling homeownership gives you. When you own, you have the security that comes from knowing you are building equity and living in a place that belongs to you. You are not at the mercy of a landlord who can raise your rent or evict you.

Some reasons why homes make great investments

1. Forced Savings
   1. Homeowners will do just about anything to keep from losing their homes.
2. Leverage
   1. Leverage
3. Other people’s money
   1. You hear this phrase among smart investors. Instead of working for their money, rich people get their money to work for them. Well, really rich people not only get their money to work for them but also get other people’s money to work for them. When you buy a home, you are doing just that - using the bank’s money to get rich. Meanwhile, your money can be working for you elsewhere - say, compounding in a retirement account.
4. Tax breaks
   1. By letting you deduct the cost of the interest you pay on your mortgage (up to a max of $1 million), the government gives you a huge incentive to become a homeowner.
   2. The higher your tax bracket, the more the government is helping you buy a home.
   3. If you are in the 30% tax bracket, the government is basically subsidizing almost a third of your mortgage payment (particularly in the early years, when most of your monthly payment goes to pay interest).
5. Pride of ownership
6. Real estate has proven to be a great investment
   1. Homes are not stocks. They don’t trade on an exchange. You cannot buy them and sell them with the click of a mouse.
   2. Over the long run, real estate prices almost always go up, and buying a home almost always works out great.
   3. According to figures kept by the National Association of Realtors, there has never been a national real estate bubble.
   4. Ever since 1968 (when they first started keeping records), real estate investments have averaged an annual return of 6.3%