Top Real Estate Scholars Weigh In on Buying vs Renting

Do you have friends or family who rent who have been weighing the pros and cons of continuing to rent vs buying a home? We’re not talking about just the calculations to compare payments to see which is lower, we’re looking at the bigger picture and what we feel is the most important financial consideration – building wealth.

Here’s the quick and dirty of how you create wealth by renting vs owning:

Renting: Rent a similar quality home and reinvest all monies that would otherwise be invested in home-ownership. (down payment, maintenance, taxes, insurance etc.)

Ownership: The principal portion of your mortgage payment helps build your net worth through building the equity you have in your home. (in addition to the leveraging low down payments, tax benefits etc.)

Here’s a great video from Florida Atlantic University School of Real Estate that is a worth watching for anyone you know on the fence about buying vs renting:

 

Eric Belsky, the Managing Director of the Joint Center of Housing Studies at Harvard University has expanded on the top financial benefits of home-ownership as collected by our friends over at Keeping Current Matters:

1.) Housing is typically the one leveraged investment available.
“Few households are interested in borrowing money to buy stocks and bonds and few lenders are willing to lend them the money. As a result, home-ownership allows households to amplify any appreciation on the value of their homes by a leverage factor. Even a hefty 20 percent down payment results in a leverage factor of five so that every percentage point rise in the value of the home is a 5 percent return on their equity. With many buyers putting 10 percent or less down, their leverage factor is 10 or more.”

2.) You’re paying for housing whether you own or rent.
“Homeowners pay debt service to pay down their own principal while households that rent pay down the principal of a landlord.”

3.) Owning is usually a form of “forced savings”.
“Since many people have trouble saving and have to make a housing payment one way or the other, owning a home can overcome people’s tendency to defer savings to another day.”

4.) There are substantial tax benefits to owning.
“Homeowners are able to deduct mortgage interest and property taxes from income…On top of all this, capital gains up to $250,000 are excluded from income for single filers and up to $500,000 for married couples if they sell their homes for a gain.”

5.) Owning is a hedge against inflation.
“Housing costs and rents have tended over most time periods to go up at or higher than the rate of inflation, making owning an attractive proposition.”

The bottom line – for those who have to be mobile for any reason or don’t have access to the minimum down payment their scenario requires, it may may sense to continue renting. Otherwise, a very good case is made for home-ownership being the best way to build wealth with housing – for now. Markets change quickly, so always consult your real estate professional to get the latest information.

Advertisements

About CarolSawdey

I'm a Broker/Realtor in the San Ramon Valley. A trusted advisor in the local community: We help people buy and sell homes. We counsel them thoroughly. We negotiate to their advantage. We keep their stress to a minimum. And we love what we do!
This entry was posted in Danville, Home Loans, Homebuying, Real Estate Market, Renting, San Ramon and tagged , , , , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s