Why Do So Many People Prefer Buying As Opposed To Renting
Traditional wisdom used to state that buying a home is always a great investment. But after the 2008 housing crisis, many people who saw their equity sliced in half began questioning this theory.
In many areas of the United States, buying a home is still a better decision than renting for people who plan to remain in the space for at least 3-5 years or more, both for financial and emotional reasons. Here are 5 reasons why so many people prefer buying as opposed to renting.
Investment
As a homebuyer, the outlay of a small down payment can give you the opportunity to make additional out sized gains.
Imagine that you put down a 20 percent down payment on a $100,000 house. The price rises 5 percent, to $105,000. You would earn $5,000 on your initial outlay of $20,000.
Neighborhood Connection
As a homeowner, you’re more likely to become involved in your local community. There is a higher chance that you will join the neighborhood association, organize potlucks or block parties with your neighbors, coach a local sports league or volunteer at the local school.
While it is possible that you will get involved with the community as a renter, you will also likely feel an emotional barrier that stems from knowing you might move in a year or two. Committing to an area for the long-term can inspire you to invest more time and energy into improving the neighborhood and connecting with the surrounding community.
It is a Kind of Forced Savings
A home can be a type of “forced savings.” Each month, a portion of your mortgage payment is returned to you in the form of equity. The longer that you own your property, the more equity you build – both via mortgage payments as well as in potential value rises.
The reality is that renters do not have this ability. Many of the pro-rental arguments hinge on the assumption that money “saved” – often through lower monthly payments.
Realistically, though, what’s the likelihood that a renter would take the money saved and invest it, rather than spend it on a trip to the Bahamas? And if that money were invested, what’s the likelihood that a renter wouldn’t panic during the next crash and sell at the bottom of the market, turning paper losses into actual losses?
Home functions as ‘forced savings,’ helping you build equity. Like a personal trainer, it keeps you accountable.
Flexibility with Home Improvements
As a homeowner, you can have the financial ability to upgrade your home to your heart’s content – without carrying risk or ongoing financial commitment.
Think about it, say you were to receive a bonus at work, you can celebrate by installing hardwood floors or renovating the kitchen. If you suffer a financial setback, you can defer your plans to make any major changes.
Renters cannot do this because they do not hold this flexibility. The only way they can upgrade their living space is by moving, and this entails both hassle and commitment.
Homeowners, by contrast, can upgrade their home as they accumulate cash over the years. Home improvements are a one-time expense that does not require an on-going commitment.