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hich resulted from land ownership become a hallmark of the American experience.</p><p id="087a">This desire to be masters of our own land exists to this day. <a href="https://magazine.realtor/daily-news/2019/03/06/survey-homeownership-still-hallmark-of-american-dream?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+DailyRealEstateNews+%28Daily+Real+Estate+News%29">A 2019 survey</a> determined 79% of the respondents still consider homeownership to be “…a vital component of achieving the American Dream.”</p><h2 id="d117">A House is a Potentially Valuable Asset</h2><p id="df7d">A homeowner has the potential to create a very powerful financial opportunity compared to someone renting. Making on-time payments reduces the principle and interest owed on a home’s mortgage. The owner is, in a very real sense, paying themselves. Reducing the amount owed compared to the value of the home creates equity for the homeowner. Should the home also increase in value, the owner’s equity can grow without any addition effort.</p><p id="8136">There are many uses for this equity. It can be borrowed against, used as a downpayment for a future home, or used as a ‘nest egg’ for retirement. The power to tap into the home’s equity allows homeowners to have some financial flexibility compared to renters. According to Zillow, the median home price in the United States, as of this publication, is just over $225,000. A homeowner who nets$ 50,000 on the sale of their existing home can use that as a downpayment, reducing monthly mortgage payments. A renter saving $500 a month would need to save for almost eight and a half years to achieve the same downpayment.</p><h2 id="1291">It’s Yours, For Better or Worse</h2><p id="917f">While there are many benefits to homeownership, it is not all sunshine and rainbows. A roof leak or a burst pipe will incur sudden expenses, which are the homeowner’s responsibility. The nice yard you play in needs to be mowed. You either do it yourself or pay someone to maintain it. When the carpet gets worn out or the living room needs painting, the cost falls to the owner.</p><p id="1261">It is much less financially painful to call the landlord and inform them of a needed repair. A renter does not have to shop for a new dishwasher. One will be arriving soon, courtesy of the property owner. They might get a little warm if the air conditioner fails in July, but the renter won’t have to pay thousands for a new HVAC unit. Not having to pay for an unexpected repair, or a regular maintenance item, will allow renters to save money compared to homeowners.</p><h2 id="a246">Renting Allows for Greater Mobility</h2><p id="6c6a">Buying a home represents a substantial investment of money and time. It is a psychological, and physical, setting down of roots. The home is a major purchase, and a long-term financial contract if there is an associated mortgage. If you find a job opportunity or want to live in a different area, it is much harder to sell a house than to end a lease. Owning the home increases privacy and control. When a homeowner hears loud noises coming from their ceiling, they go upstairs and tell their child to be quiet. For a renter, a noisy neighbor living above them creates discomfort and can lead to confrontation.</p><p id="eab7">However, the renter is not tied to a neighborhood or a region. If properties in a nei

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ghborhood begin to deteriorate, the homeowner has very little control over the decline of the neighborhood as a whole. This reduction of value disincentives the owner from selling while the renter can depart when their lease is up.</p><h2 id="9b7e">The True Costs</h2><p id="1a95">At face value, a $1000 mortgage payment for a three bedroom house appears to have more value than a$ 1000 rental for a two bedroom apartment. However, it is impossible to analyze these two numbers in an ‘apples to apples’ comparison. There are many other payments, homeowner’s association, maintenance, and perhaps some utilities, which contribute to the overall price of homeownership. It also is much less money to begin a lease than to purchase a home.</p><p id="c989">In 2019, The Mortgage Reports published a <a href="https://themortgagereports.com/46632/the-cost-of-homeownership-vs-renting-over-3-5-and-10-years">financial analysis comparing the overall costs of renting versus homeownership</a>. The study looked at rents, mortgage payments, insurance, and the multitude of additional costs associated with homeownership. Their conclusion was that renting was less expensive over the first two or three years. After the third year, and beyond, the costs of renting began to outpace owning a home.</p><p id="993f">Over the long-term, not only did homeownership become less expensive, it also resulted in equity. By paying their mortgage and creating an asset, they were participating in a phenomenon called ‘forced savings.’ Instead of spending their money, it was being forced into the equity by way of the mortgage payment. A renter is much more likely to spend any difference in their monthly expenses compared to a homeowner’s.</p><p id="5c5e">After completing the term of mortgage the payments, the homeowner owns the house outright and a major expense disappears. Even better, the homeowner gets to keep the money paid into the equity. A renter pays rent payments for the same timeframe, and will continue to pay rent, without getting any equity from their rental payments.</p><h2 id="94a5">The Right Answer</h2><p id="1fa9">In the age old debate between renting and owning a home there is no single right answer. Each person must look at their situation and determine the correct solution. Someone who desires flexibility or does not want to be bothered with maintenance and repairs might be better off renting. People without a downpayment saved or with credit issues can use the lower monthly expenses to build themselves a stronger financial situation.</p><p id="002c">However, you still are going to have to pay for shelter one way or the other. The equity a home develops over time is a powerful incentive to homeownership. The homeowner also has greater control of the interior and exterior of their home. Also, it is very desirable to stand on a piece of land you own. It puts you one step closer to achieving the American Dream.</p><p id="8ef4">So, what is the right choice for you? If you are considering buying a home sign up for Real World Real Estate. This month I am publishing a series of articles which comprise <a href="https://medium.com/real-world-real-estate/first-time-buyer/home"><i>The Essential First-Time Home Buyer Guide</i></a>. You don’t want to miss a single article. Sign up and hit the follow button to get access to this great resource.</p></article></body>

Are You Better Off Renting or Buying a Home?

This is the second installment in The Essential First-Time Home Buyer Guide. If you missed the first article ‘To Buy or Not To Buy,’ you can read it HERE. The Essential First-Time Home Buyer Guide is being created as a part of Shaunta Grimes’ Blog-Your -Own-Book Challenge.

“You don’t smell that?” is a common question in my house. My wife and sons have been graced with a sense of smell that makes bloodhounds jealous. My sense of smell is terrible, which is both a blessing and a curse. Still, when my wife asks me if something stinks, I tend to believe her.

For three straight days she thought something in the kitchen smelled off. I took out the trash, cleaned out the dishwasher, and scoured the refrigerator for the source of the offending smell. On the fourth day a small swarm of gnats around the drain in the kitchen sink helped me narrow my search. The smell was coming from the drain. Cleaning the garbage disposal did not solve the problem. I knew I had no choice but to look under the house. Armed with a flashlight, I squeezed myself into the crawlspace.

To my horror, I found days worth of food waste collecting on the vapor barrier. The drain pipe had broken and was ejecting waste water and ground-up food onto the floor. It was a disgusting mess. As I stared at the large pool of filth, I knew I had two choices. I could pay a lot of money to a plumber to fix it or figure out the repair myself. If I were renting the house, I would just call the landlord and they would be responsible for the repairs. Is the expense and hassle of home repairs enough to give up my autonomy as an owner? That is one of the ultimate questions one must answer when choosing to rent or to own.

Homeownership: A Cornerstone of the American Dream

“Life, Liberty, and the Pursuit of Happiness.” The three unalienable rights listed in the Declaration of Independence still resonate over two centuries after they were written. A loose adaptation of Adam Smith’s ‘Natural Rights’ of “Life, Liberty, and the Pursuit of Property,” the phrase has long been part of the foundation of the spirit of independent individually inherent in the United States.

Property ownership was something critically important to the earliest European settlers. They left behind a feudal continent where land ownership was reserved for governments, aristocracy, or the church. In America, there was opportunity for an individual to own land. The chance to enjoy the freedom and independence which resulted from land ownership become a hallmark of the American experience.

This desire to be masters of our own land exists to this day. A 2019 survey determined 79% of the respondents still consider homeownership to be “…a vital component of achieving the American Dream.”

A House is a Potentially Valuable Asset

A homeowner has the potential to create a very powerful financial opportunity compared to someone renting. Making on-time payments reduces the principle and interest owed on a home’s mortgage. The owner is, in a very real sense, paying themselves. Reducing the amount owed compared to the value of the home creates equity for the homeowner. Should the home also increase in value, the owner’s equity can grow without any addition effort.

There are many uses for this equity. It can be borrowed against, used as a downpayment for a future home, or used as a ‘nest egg’ for retirement. The power to tap into the home’s equity allows homeowners to have some financial flexibility compared to renters. According to Zillow, the median home price in the United States, as of this publication, is just over $225,000. A homeowner who nets $50,000 on the sale of their existing home can use that as a downpayment, reducing monthly mortgage payments. A renter saving $500 a month would need to save for almost eight and a half years to achieve the same downpayment.

It’s Yours, For Better or Worse

While there are many benefits to homeownership, it is not all sunshine and rainbows. A roof leak or a burst pipe will incur sudden expenses, which are the homeowner’s responsibility. The nice yard you play in needs to be mowed. You either do it yourself or pay someone to maintain it. When the carpet gets worn out or the living room needs painting, the cost falls to the owner.

It is much less financially painful to call the landlord and inform them of a needed repair. A renter does not have to shop for a new dishwasher. One will be arriving soon, courtesy of the property owner. They might get a little warm if the air conditioner fails in July, but the renter won’t have to pay thousands for a new HVAC unit. Not having to pay for an unexpected repair, or a regular maintenance item, will allow renters to save money compared to homeowners.

Renting Allows for Greater Mobility

Buying a home represents a substantial investment of money and time. It is a psychological, and physical, setting down of roots. The home is a major purchase, and a long-term financial contract if there is an associated mortgage. If you find a job opportunity or want to live in a different area, it is much harder to sell a house than to end a lease. Owning the home increases privacy and control. When a homeowner hears loud noises coming from their ceiling, they go upstairs and tell their child to be quiet. For a renter, a noisy neighbor living above them creates discomfort and can lead to confrontation.

However, the renter is not tied to a neighborhood or a region. If properties in a neighborhood begin to deteriorate, the homeowner has very little control over the decline of the neighborhood as a whole. This reduction of value disincentives the owner from selling while the renter can depart when their lease is up.

The True Costs

At face value, a $1000 mortgage payment for a three bedroom house appears to have more value than a $1000 rental for a two bedroom apartment. However, it is impossible to analyze these two numbers in an ‘apples to apples’ comparison. There are many other payments, homeowner’s association, maintenance, and perhaps some utilities, which contribute to the overall price of homeownership. It also is much less money to begin a lease than to purchase a home.

In 2019, The Mortgage Reports published a financial analysis comparing the overall costs of renting versus homeownership. The study looked at rents, mortgage payments, insurance, and the multitude of additional costs associated with homeownership. Their conclusion was that renting was less expensive over the first two or three years. After the third year, and beyond, the costs of renting began to outpace owning a home.

Over the long-term, not only did homeownership become less expensive, it also resulted in equity. By paying their mortgage and creating an asset, they were participating in a phenomenon called ‘forced savings.’ Instead of spending their money, it was being forced into the equity by way of the mortgage payment. A renter is much more likely to spend any difference in their monthly expenses compared to a homeowner’s.

After completing the term of mortgage the payments, the homeowner owns the house outright and a major expense disappears. Even better, the homeowner gets to keep the money paid into the equity. A renter pays rent payments for the same timeframe, and will continue to pay rent, without getting any equity from their rental payments.

The Right Answer

In the age old debate between renting and owning a home there is no single right answer. Each person must look at their situation and determine the correct solution. Someone who desires flexibility or does not want to be bothered with maintenance and repairs might be better off renting. People without a downpayment saved or with credit issues can use the lower monthly expenses to build themselves a stronger financial situation.

However, you still are going to have to pay for shelter one way or the other. The equity a home develops over time is a powerful incentive to homeownership. The homeowner also has greater control of the interior and exterior of their home. Also, it is very desirable to stand on a piece of land you own. It puts you one step closer to achieving the American Dream.

So, what is the right choice for you? If you are considering buying a home sign up for Real World Real Estate. This month I am publishing a series of articles which comprise The Essential First-Time Home Buyer Guide. You don’t want to miss a single article. Sign up and hit the follow button to get access to this great resource.