Should I just rent? To answer that question, you need to answer this question: Do you want to build wealth? To answer the former question, one must answer the latter. My client asked me this question yesterday and although the answer is obvious to me, my passion as a Realtor is to educate my clients because the more you know, the more you will grow.
I shared with my client 3, although there are many more, reasons why she should buy.
1. As a renter, when you pay rent, your money is gone. Gone! There is no return on your investment, you are only paying for a place to live. When you move out, you do not walk away with any cash in hand, only memories and maybe a few pictures. Please note, wealth building is occurring but not for you, only for your landlord. If you add all of the rent you paid over the years, that is the amount you invested in your landlord’s property. If you paid $2000 every month, then annually you gave away $24,000. For every 4 years you rented, you gave away $96,000. Approximately $100,000 and we are not including rent increases. According to NAR (National Association of Realtors), homeowner wealth is 40 times higher than renters. Simply stated, wealth is based on your net worth. To calculate your net worth is to take what you own and subtract what you owe. You don’t own a home but you own a car, Gucci handbags and other expensive items. Can you include those items? You can, but what is the value for each item? Can you sell them and receive more than what you paid for them? In almost all cases, no. With real estate, in most cases, yes because you are buying an item that gains value over time. If you purchased a home a decade ago, you would be sitting on approximately $100,000 in equity in some markets. If you bought a car a decade ago, you must sell it for a fraction of what you paid, if you can sell it. In some cases, you are left to donate it or junk it. No equity! Building wealth as a homeowner is everything.
2. Equity is cash earned based on the value of the property minus what you owe on your mortgage. In some markets, I have seen over a $100,000 in equity earned within 2 years. A former client purchased a month ago and gained $15,000 in equity before moving into her home. Not all markets are the same and equity gains will vary according to your location. But, wherever you live, if you live there long enough,you will gain equity compared to renting, which offers none. Access to equity, cash in hand, is via selling the home or borrowing it in a home equity loan. It is best to not touch it and allow it to continue to grow.
3. Who wants a bigger refund at tax time? Me! When you are a renter, can you receive a tax deduction? No! But as a homeowner, you can. It is called the home mortgage interest deduction. If you itemize on your taxes, then you are able to deduct the mortgage interest. Please note, it is not a dollar for dollar deduction but it is an opportunity to receive a larger refund. I recommend that you speak to your tax professional to maximize your tax deduction.
There are additional reasons to own a home but these are the most important. After our discussion, my client is excited to move forward and free herself from building her landlord’s wealth and start working on her wealth. If you want to learn more about the journey of home ownership and wealth building, let’s talk about it.