Every day I talk to people who are crazy about the life of the “American Dream”.
The story looks like this:
- Graduate from college
- Find high paid 9-5 jobs
- Get married
- Buy a highly leveraged home
- Have children
- Find 9-5 jobs with better payments
- Upsize to larger homes and larger mortgages
- Send your child to college
- Downsized to a small property
- Hopefully you can live and enjoy life for another 20 years without having a mortgage that forces you to get out of bed every morning.
Does this sound like you and your future plans?
In this article, I would like to challenge the above situation.
Food, clothing, and shelter are three basic human requirements. After taking care of food and clothing, most of you start looking for a home to call yourself. There is no doubt that buying a home makes sense for some, but it certainly isn’t for everyone. Owning a house gives you stability. At least that’s what people say.
So when you’re looking for a place to live, many people will tell you a lot of reasons why you should buy your own home. However, some say that owning a home as a way to create wealth is none other than the marketing strategy of the real estate industry. And they have a pretty good case.
With that idea in mind, renting habits have changed over the last few years, as many consider this a viable option. Economically, owning a home is not always the best bet. I go further and tell you that buying a home to live is a terrible waste if you are looking to make money.
Let’s look at four reasons why it’s better to rent than to own real estate.
Why renting and investing outweigh buying and owning
1. You don’t need to get a mortgage.
This is the most obvious, but often misunderstood. While some people can just buy property with the savings they are ready to spend, in most cases mortgages are considered the only way to buy a home. Most people don’t just have the money to lie down, and getting a mortgage is the best way to achieve that.
Therefore, even if there is more real estate in the buyer’s bank account, the buyer can use it in their own home. Mortgages are easy to think of as a safe option to consider, as they can spread their enormous costs over 25 years, for example.
And that makes it easy, right? All you have to do is make a monthly payment and pay a little extra to the bank in addition to the original cost, and you’re done.
That small percentage of what you have to pay in addition to the original amount will be a significant amount over this long term, despite the mortgage interest deduction. Considering interest, it’s easy to pay twice the original purchase in 25 years. But it’s all pretty well understood.
However, there is one thing that is always forgotten. Mortgages are debt.
so what? You make monthly payments, and they are probably even lower than what you pay for rent. But rent is an expense, not a debt. And that’s the only thing that makes all the difference.
Buying a home for a mortgage only increases your debt to the income ratio you already have. This has one major impact. If you need to borrow money for something else important, for example a student loan or a car loan, it’s very difficult to get it.
This means that all the money you have access to for your home is just sitting there and spending more on you. There’s nothing you can do with that money, and you definitely can’t use it to invest it and make more money.
Owning a house usually costs you a monthly fee than renting it anyway. To date, I still borrow and use all my personal money for investment purposes.
I like to joke by calling my personal money a “little soldier”. They aren’t trapped in bunkers (mortgages) and can’t move anywhere, they’re always fighting and making me more money.
2. People borrow more than they can afford.
When you go buy something, you just look at the price attached to it and you either buy it or you won’t buy it, depending on how much you can spend. In this case, you can usually use what you have in your wallet or bank account. But when you’re preparing to buy your own home, things change. By getting a mortgage, a slight increase in monthly costs can give you a tremendous increase in your budget. It’s easy to go too far and be tempted to pay more than you should.
Many people involved in buying real estate, like realtors and mortgage brokers, can mess with your emotions and make you commit to what you really shouldn’t do. And anyway, you think it’s a good investment, right? Well, reality presents another picture. Today, more than 10 million homeowners in the United States have mortgages that are worth more than the actual value of their home. And they will continue to repay these mortgages for years. I suspect these people no longer think they have made a good investment.
If you pay the rent, you know what to pay next month and you don’t have to worry about paying a lot of money for the property. If for some reason you can’t pay the rent, you can find another property with a lower rent as soon as the rent goes up. Another advantage is that the lease is fixed as long as it is still valid. If the landlord decides to raise the rent, they need to notify you. Therefore, there are no surprises or headaches.
3. You are no longer mobile.
Globalization has made people more mobile. But even when you’re not away from the country, people are changing jobs much more than before. This is even more true for the latest generation, which has hit the workforce. When all these people change jobs, many relocations occur. Many people choose a particular area simply because of how close they are to their workplace or their child’s school. If you are one of those people, it makes a lot of sense to stay flexible in where you live. If you buy a house, its mobility is gone.
This is certainly not the case when you rent. You are almost as mobile as you want, and it has its advantages, perhaps even more for the younger generation. If you want to get the most out of your life, you need to be able to seize as many opportunities as you can. When you’re tied to a house you own, you’ll have to tell a lot of possibilities. The whole world of opportunity is just there when you are renting. Take a look at me, for example. I packed up my luggage and left Sydney, Australia, to Kansas City. This all happened within two weeks after making some minor adjustments.
4. Housing has operating and maintenance costs.
The value of the house increases over a period of time, but the life of the equipment in the house does not increase. Property is a valuable asset, so owners are doing their best to keep their homes in good condition. This means that the owner will spend money on repairs, modifications, refurbishments, or annual common service charges to maintain its asset value.
Owning costs are usually overlooked, but they can be quite expensive. Leaky roofs, frozen pipes, pools for care, or simple home renovations are always part of the cost of homeowners’ minds. Apart from this, the owner also has to pay annual property tax and various other miscellaneous expenses.
Now, don’t forget that if you become a landlord and make good use of small soldiers (money), it will cost you a lot. However, in this scenario, the property you own becomes a tenant and generates a lot of cash flow. In return, payment of costs should not have a direct impact on you. Because they are covered by the rent you receive from your tenant.
Nevertheless, it is still very common for people to encourage you to buy instead of rent. Here’s a good way to see it. If you are planning to stay where you are and you are not looking for financial growth and more freedom, buying a home may be for you. Owning a home can cost much more than paying your monthly mortgage, so everyone else really needs to rethink.
And don’t forget those little green soldiers marching and fighting for you day and night.
Are you for or against? why?
Let’s leave a comment and discuss!