Proof: Buying is Better than Renting
How is buying better than renting when nothing seems further from the truth?
2018 has brought with it many changes for potential homeowners; not least amongst them the new tax bill. The cons seem to outweigh the pros until you are looking at renting versus buying from a purely mathematical perspective. There are considerations that can be overlooked, which would otherwise prompt more Americans to favor buying over renting.
Return on Investment (ROI)
This is kind of a no-brainer, considering there really isn’t any ROI on renting a property. The down payment on a home, on the other hand, is your first investment that will provide a cash return at the point of selling. If you put 20% down on a $100,000 property, you are investing $20,000 in that property. Now, let’s say you sell the house and make $50,000; that means you made a return on your investment. However, if you were to put 10% down on the same property, you would walk away with a higher ROI. The moral of the story? There is no benefit to putting down a higher initial investment unless you would struggle to make monthly payments. Using more money as equity on a property will not increase the ROI – but giving it to a landlord will only make the landlord rich.
The 2007 crash is still recent enough in memory that it is spooking homebuyers across the country. In the aftermath of the crash properties were going into foreclosure at alarming rates, which was mostly down to homeowners who had bought homes and witnessed the worst depreciation of property value since the depression. Those homeowners ditching properties had a further negative impact on house prices. However, there were lessons learned when the bubble burst, which is worth noting. There are so many new regulations in place to ensure lending is more responsible now that housing prices are starting to rise again. That means those who are considering buying are on the cusp of an upward wave of appreciation on the property. The money you pay in rent will continue to go to a landlord on a property that grows in worth, while you are left with nothing to show for your efforts.
When you pay a mortgage, your money goes towards interest, taxes, insurance, and principle. Now, the majority of Americans will recognize the first three types of payment because they are a necessary evil in many aspects of life. The last type of payment, however, is where you start making something tangible back from your monthly mortgage payments. Each month, more of the amount you pay will go towards the principle. What you are seeing there is the actual loan balance decreasing. You are essentially saving each time you pay principle; which is money you can either use for other purposes or save away for a rainy day if you are managing your budget comfortably.
So, you have started with zero investment when you rent, but that may not be the end of your troubles. If your rent rises, you are putting even more money in your landlord’s pocket when you could be sitting with a fixed mortgage and making an investment of your own. Even if your rent doesn’t go up, consider the fact you may need to move and could end up struggling to find reasonable rent in the place where you need to live for work, school, or simply because it’s a nicer area to live in.
Investing in You/Your Family
What you have to ask yourself is: Do you want to invest in you/your family or the landlord’s next property? In the case of the former, you will want to own your own home, which may become a family home one day. In the case of the latter, there is at least one property you will never own. It bears thinking about if you can afford to put down an initial payment and keep up with a mortgage.
Pursuing your Dream of Becoming a Homeowner
This is the part where Galaxy Lending Group can really help. If you are in two minds about whether renting or buying is right for you, we have plenty more advice available to help you make your choice. Galaxy Lending Group specializes in making dreams come true through financing or refinancing options that are designed with the customer in mind. Integrity and reliability are core values of our company. As a lender, you can rely on Galaxy Lending Group to offer you all the support you will need to take the plunge and purchase your first home.
Call Galaxy Lending Group at (855) 595-1233 or fill out our online form for more reasons on why buying is better than renting for you and your family.