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Renting Vs. Buying - Home Ownership

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聽聽2387
5 months ago

Many people have been debating buying verse renting a home and what is more financially optimal. Let鈥檚 dive into the pros and cons of both and then I will share my opinion at the end.

Important Things To Consider:

Before diving into the bulk of this, it鈥檚 important to consider a few questions that may drastically impact your decision regardless of what鈥檚 more financially feasible:

路聽聽聽聽聽聽聽聽 Where you want to live versus where you are willing to live?

路聽聽聽聽聽聽聽聽 At what age do you want to own your home and or start the buying process?

路聽聽聽聽聽聽聽聽 Are you willing to live with roommates or to rent out part of the property?

https://www.realtor.com/mortgage/tools/rent-or-buy-calculator/

This is a random tool I found to calculate the difference between the cost of buying and selling wherever you live. They found that it鈥檚 cheaper to rent any place for less than 5 years, but if you intend to stay there for more than 5 years, it will become less expensive to buy a home in the long term.

Renting

Pros

路聽聽聽聽聽聽聽聽 You don鈥檛 have to save a ridiculous amount of money for the down payment.

路聽聽聽聽聽聽聽聽 You can invest your money and avoid losing wealth to inflation.

路聽聽聽聽聽聽聽聽 You have total freedom to move and live anywhere without being tied down geographically.

路聽聽聽聽聽聽聽聽 You don鈥檛 have to pay for home maintenance, condominium upkeep fees, property tax, or insurance.

路聽聽聽聽聽聽聽聽 Getting rid of roommates or changing your living situation is much easier.

路聽聽聽聽聽聽聽聽 You don鈥檛 have to stress about the property, its value, or anything related to the legal and administrative side of owning a home.

路聽聽聽聽聽聽聽聽 Tends to be cheaper than buying within the first 5 years of living there.

Cons

路聽聽聽聽聽聽聽聽 You cannot easily make modifications to the property.

路聽聽聽聽聽聽聽聽 You are not building equity 鈥 you are putting money into paying off someone else鈥檚 mortgage.

路聽聽聽聽聽聽聽聽 Lack of certainty & stability that you will keep renting after your current lease ends.

路聽聽聽聽聽聽聽聽 More expensive to live there after 5 years.

Buying

Pros

路聽聽聽聽聽聽聽聽 You will have your own home. This can provide a huge amount of peace and bring less stress to your life.

路聽聽聽聽聽聽聽聽 Ideally your real estate will appreciate a lot in value.

路聽聽聽聽聽聽聽聽 Your rent payments will go towards equity instead.

路聽聽聽聽聽聽聽聽 You can sometimes get tax benefits for owning your home, especially for first-time buyers.

路聽聽聽聽聽聽聽聽 It鈥檚 cheaper than renting if you intend to live there for more than 5 years.

Cons

路聽聽聽聽聽聽聽聽 You need a massive amount of money saved to afford the down-payment to get a reasonable mortgage.

路聽聽聽聽聽聽聽聽 Housing prices are currently at all-time highs.

路聽聽聽聽聽聽聽聽 You have to pay home owner鈥檚 insurance, home maintenance, property tax, or condominium upkeep fees.

路聽聽聽聽聽聽聽聽 You will pay insane amounts of interest on your mortgage aka this asset will make you lose money acting more as a liability.

路聽聽聽聽聽聽聽聽 Your ability to move or travel will be greatly limited, and you will have to deal with potentially bad neighbors, a bad neighborhood, etc. over time.

路聽聽聽聽聽聽聽聽 If you rent out part of your home or have roommates, it鈥檚 more challenging to evict tenants or change up the living situation given the landlord usually has much more legal obstacles.

路聽聽聽聽聽聽聽聽 Real estate is very illiquid.

路聽聽聽聽聽聽聽聽 You need to find the right home to buy and you need someone who wants to buy your home in order to sell.

路聽聽聽聽聽聽聽聽 There could be one-off events that can impact your home value and people鈥檚 willingness to buy it like natural disasters, animals on the verge of extinction living on your property, or someone dying in your home.

路聽聽聽聽聽聽聽聽 There are additional costs to selling and buying like inspections and realtor fees.

Personally, I think it makes the most sense to build up your investment portfolio instead and build up your wealth so that you are avoiding losing money to inflation and missing out on great investment opportunities. I believe that I can do this in 5 years making it cheaper to rent and even if it did take 10 years for example and I spend a bit more from renting, the idea is that I would invest until I have the wealth to buy a home outright to have more bargaining power, avoid paying interest on a mortgage, etc. The other way I may do it is once I have enough to cover my expenses, to continue investing until I have enough to cover my expenses plus $1000 extra which I assume will be close to 1 million dollars invested in dividends with an average 5% yield and then pay for my expenses passively while using the extra funds to pay down a mortgage.

While I understand that you can have people live with you in your home to cut down a lot of the costs, I wouldn鈥檛 rely on living with my buddies for the next 10 to 20 years and that they never leave nor would I want to. Again, in this situation, you鈥檇 probably also still have to have saved the down payment and lost insane amounts of wealth to inflation.

Refer to http://www.shadowstats.com/alternate_data/inflation-charts for a better take on inflation though I still feel this is too low considering logically it should be more correlated to how much money was printed over the past 2 years.

To illustrate how big of a deal this is, let鈥檚 take the 9% inflation that we have now which I still believe is generously low, and let鈥檚 apply this to a 5-year time span. If you鈥檙e making $50,000 a year and you are as frugal as me or more and you save 50% of your income every year. With that inflating away at 9% per year, you end up with $93,035 or so after 5 years having lost $31,965 to inflation. So by not investing, you鈥檙e already down about 26%. Given you鈥檒l need more than $93,000 for your down payment, I think it鈥檚 reasonable to say this could take you at least 5 to 10 years to save. The thing is, if you invest that money right, you could instead retire in 5 to 10 years. Instead, that just gets you started on your mortgage that you may work another 10-30 years to pay off.

Are you renting or putting equity into a home? What works best at what age? What鈥檚 right for you? Let me know what you think about this in the comments below and don鈥檛 forget to subscribe!

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*Disclaimer: This is not financial advice and is purely for entertainment purposes. What you see, hear, or read is my personal opinion, and any statements made are based on my views and should not be misconstrued as fact. My crypto portfolio may or may not be simulated*

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Comments

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$ 0.01
5 months ago

Hoping soon to have our own house. I'll be the happiest person if I could provide a home to my family. A home that we can call our own

$ 0.01
5 months ago

These things make us to think deeply hehe lol. Especially when you are planning having a home. Maybe, need make money more so that our decision to build home is already onset.

$ 0.01
5 months ago

Renting means that you are helping other owners to pay their property installments. To own your own house means that you have to be ready to sacrifice the first 5 years to no expensive traveling or massive spending. After the 5 years, sure your annual income pay rise will help you to lessen your house monthly repayment installments.

$ 0.01
4 months ago

And now with skyrocketing prices, property taxes may become impossible to afford

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User's avatar scottcbusiness
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4 weeks ago

I could say that I am lucky enough to be given the advantage of having my own property at a very young age. Though its not like what you think, i didn't buy it with my own money. I inherit it from my mother.

$ 0.00
5 months ago

I am currently in the same roof with my parents. Someday I know I would have to separate from them. Personally I would love to save amount for my future house than making a loan for it to happen if it would mean renting then I would. But since I am in a country that family extension is okay so maybe I would live with mom up until I could afford to own a house.

$ 0.00
5 months ago

I think having my own property is the most loving option I'll love to explore. I'm currently saving towards that though I currently stay with my parents

$ 0.00
5 months ago

I prefer buying my own house and lot to renting. It may be an investment without profit yet it may give me fulfillment yet I agree that buying needs a lot of money so for now, I'll do my best to build up my investment portfolio to achieve that.馃槉

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5 months ago