The American dream is an influence in so much of our lives. Even if it’s a little old school and achieving it seems a bit harder, there are certain benchmarks to “success” that still thrive. One of those is home ownership.
This is the foundation — the bedrock — of the American dream. White picket fences and a Victorian home are the ideals components of a successful life in the United States. This image is even reinforced in movies and television. Take a personal survey and count how many times the protagonist owns a home. Tony Stark is a homeowner. Homer Simpson is a homeowner. Spider-Man rents, but he’s young and you know he’s on the path to homeownership.
It’s clear that owning property is on the checklist of most Americans. Putting aside society’s American dream influences for a moment, does it actually make financial sense to own a home? Does renting make more sense from the standpoint of money and things like job markets or family.
In this blog, we’ll look at how big concepts factor into renting versus home ownership. These will be the kind of ideas that are discussed at the kitchen table while deciding between the two.
Renting gives you more flexibility in life. A new job in a new location? No problem. You don’t own the property so you are not married to that two-bedroom bungalow or 3rd-floor apartment. Often, it’s just a matter of breaking a lease, which can be done legally. This freedom can be a big deal since a job for life — another American dream checklist item — is no longer a reality. Moving is common in this day and age where the average time spent with an employer is 4.2 years, according to a Bureau of Labor Statistics report in 2016.
Flexibility can also be seen from a different perspective. Homeowners have more flexibility when it come to that color on the living room wall or the pine tree in the back that looks like it’s going to fall on the house the next time a hurricane hits. Since it’s their property, a homeowner can make these changes whenever it makes sense. Homeowners do not need permission from the landlord whereas renters are pretty much stuck with what they got.
Renters are stuck with what they get. It’s true, landlords are obligated to fix things like the broken concrete in the basement or the cracks in the ceiling. But it doesn’t mean they will right away, or even do a good job. Renters always have that nagging fear on the back of their mind that the landlord doesn’t care. Will they put in the time and energy to make a property meet your standards? The fear is why would they? They don’t live there.
Homeowners don’t have the same concern. They may hold off on minor repair to a leaky pipe because finances are not where they should be this month, but it’s not because they don’t care. There have perfectly justifiable reasons that leak doesn’t get fixed and it’s not because the landlord doesn’t give a … well, you know what I mean.
Renters are not building wealth the same way a homeowner does. Someone who owns a home has an asset that will likely appreciate in value over a number of years. You bought a home in 1980 for $75,000 in a neighborhood when Realestate Roseberry was on everyone’s lips. That neighborhood has only gained in prestige and that home is worth $400,000 today; and the mortgage is paid off. In essence, the homeowner paid “rent” in the form of a mortgage and had an asset in the end. This leaves the homeowner with a value to pass down to the next generation.
Homeowners have this option. Renters do not. They are left with paying month to month without building equity. They have to build wealth another way, which is of course not impossible but a little outside the normal path of the typical American. Of course, buying a home doesn’t always work out the way you might expect. Who says property values will rise?
How much does it cost?
This is the bottom line when it comes to renting versus home ownership. There are some advantages to renting such as:
– Not having to pay for repairs. For instance, you are not obligated to deal with a broken water heater.
-No fear of unexpected costs like fixing that broken water heater. Thus your monthly expenditures are predictable.
-Not worrying about housing markets. Will the property value change in a year? Who cares. You’re only renting.
-You have to pay first and last month’s rent, which is always a lot less than the 20 percent down payment homeowners can expect.
-The prospect of a foreclosure is nothing to worry about.
At the same time, potential homeowners have that potential financial windfall in their future. Things could work out in 15 years. That blue colonial purchased from the retired teachers en route to their Florida retirement community could rise in value considerably. This could result in a nest egg of sorts for future generations. Also, repairs may be a hurdle for a homeowner but ensuring those repairs are done the right way is an option renters may not have. For instance, it may be cheaper to buy hot water heater A but hot water heater B, despite the larger price tag but will save money down the line.
There’s no easy answer to the question, Is it better to rent or own a home? The best thing to do is consider where you are in life. Homeownership, for instance, can be the right answer if a family is a factor. Stability is a good thing because who wants to plan a move, work and take care of the needs of a two- and four-year-old. Renting makes more sense when you need flexibility. Jobs are fluid nowadays and the ability to adapt to this reality is a plus. It’s a matter of where you are in life and how these concepts factor into your life.
August 28, 2018