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Learn the advantages and disadvantages of renting vs. owning a home, how to decide what’s right for you and the ONE thing that should be the deciding factor.
Advantages of Home Ownership:
Forced savings in the form of equity
Tax benefits (interest deduction)
In control
You own the property
Can do what you want to it
Benefit from prices rising
Disadvantages of Home Ownership:
Mortgage interest to pay and mostly interest at first
Debt around your neck
Can be foreclosed
Pay for repairs, maintenance, insurance, yard
Property tax
Advantages of Renting:
No real responsibilities other than rent
No cost of repair or maintenance
No Taxes or insurance
Might be less expensive than buying
No down payment
Opportunity cost of down payment
Flexibility to move, change neighborhoods or states
Disadvantages of Renting:
All the money goes out the door
Opportunity cost of down payment – could earn $$ or 0
Can’t personalize the rental to your liking or make upgrades
At end of 30 years, own nothing
You have a landlord
Owner is in control – can raise rent, be a bad landlord
Owner benefits from price rising
You are paying for owner’s house
Financial Example
Rental Own
$1,000/mo. $300,000 purchase price
x 20% down = $60k
$240,000 loan
@4.5% interest
$1,000/mo. vs. $1,216 (tax deductible)
$800 after tax
+insurance
+maintenance
+repairs
$1,000 vs. = $1,000 est.
Consider:
How long you plan to live there
Moving is bad – commission, moving costs, remodeling, furniture
Overpaying for a home – have to pay off more than it’s worth
Are we in a real estate bubble? Don’t overpay – super important!
One expert stopped here…at $1k vs. $1k. Noooo!
At end of 30 years, $0 vs. $300,000 net worth (possibly more)!
The forced savings is the critical element to consider!
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Dear Linda,
Thank you for this nice podcast, But if it is about not buying to expensive but buying smart, Thenn why are billonnaires and millionaires buying 40/50 million dollars houses, yachts, cars ??. And not 1, Nooooooooooo, but multiples,
Good question. The answer is buying a $50 million dollar house is not what made them rich. Now that they are rich, they are looking for ways to park money that is outside of the banking system, in my opinion. That’s why we are seeing crazy prices being paid. They also already have their wealth, so if they want to use it for toys, that’s up to them. For anyone starting out building wealth, it isn’t the right move. You have to follow the steps that make wealth grow, understand how to compound money and not buy depreciating assets. That’s why they always say the first million is the hardest! Check out the 6 steps to wealth podcast for details and step-by-step how to grow wealth.
Thank you Linda for your answer, Now I understand it.
Some billionaires are moving money out of countries like China and Russia and need to park the money somewhere, so they are buying large homes, etc. What I was trying to point out is they already made their money elsewhere, they are not making their billions by buying $50 million homes.