Homeownership has always been considered the gateway to the middle class and a benchmark of the American dream. However, in recent years many families have chosen to find domestic bliss without paying a mortgage. What they’re missing are the big benefits of homeownership that just can’t be replaced by renting. Research shows that owning your own home has distinct advantages over renting, especially when it comes to building your net worth and providing a stable environment for your family. If you’re sitting on the wrong side of the white picket fence debating whether to rent or buy your next home, read our list of 16 reasons why owning your own home is better than renting.
1. OWNING IS CHEAPER THAN RENTING
Although buying a house is more expensive at the outset, if you play your cards right, it can actually be cheaper than renting over the long term. According to real estate website Trulia, homeownership is 38% less expensive than renting, on average having decreased 3% nationally from 2013. Their calculations are based on a traditional 20% down, 30-year fixed-rate mortgage. They compared the total costs of homeownership (including maintenance, taxes, and insurance) to the total costs of renting for the same period of time. They attribute the drastic difference in costs to the rising costs to rent and the low fixed-rate mortgage rate, which is currently under 5%. That’s not to say that buying a home isn’t expensive – you’d still have to come up with the 20% down payment or pay mortgage insurance that would eat into your overall savings. The fact is, paying more up front on your own home can actually save money in the long run.
2. YOU CAN BUILD EQUITY
One of the most significant benefits of homeownership is building equity, which is your share of the value of your home. In more technical terms, it’s the difference between the market value of your home and the amount that you still owe. If you pay 20% down on a home that costs $200,000, you would owe $160,000 and your equity would total $40,000 (the interest you’ll pay doesn’t factor in to this equation). However, if your home appreciates in value, your equity increases though the amount you owe does not.
Let’s say that in a few years, the market value of your home increases to $275,000, and you’ve paid off a total of $70,000. You still only owe $130,000, but your equity would be valued at $145,000. A study conducted by Merrill Lynch found that while homeowners under the age of 35 have equity valued at $53,700 on average, homeowners over the age of 65 have around $212,800 in home equity. If you buy a home now, imagine how much equity you could have by retirement! Instead of your money disappearing into your landlord’s pocket each month, you’ll be paying into something that can become more valuable over time.
3. IT INCREASES YOUR NET WORTH
Homeownership is more than just the American dream, it’s also been an effective way to build one’s net worth. Sure, business acumen and investing know-how are other ways to build wealth, but for the average Joe, homeownership has been the most tried and true method of building net worth. You can calculate your net worth by subtracting your financial liabilities from your assets, which include investments, savings, retirement funds, home equity, and other valuables. Finance professor Sebastien Betermier estimates that housing accounts for 67% of the average American’s total wealth (an unwise money move in his opinion, but a norm nonetheless). Unless you’re consistently saving and investing your money through other means, a house can serve as a way to store your wealth and build your net worth.
4. YOUR HOUSE CAN APPRECIATE IN VALUE OVER TIME
Let’s be frank — property doesn’t always appreciate in value over time (which many learned the hard way in 2008, but many experts believe that the worst is behind us). If you do your research and purchase a home with both eyes wide open, your home’s value may increase each year that you own it. Zillow economist Stan Humphries estimates that the average house appreciates in value around 3.5% each year, but some areas experience steeper increases. Some neighborhoods have increased in value 13.15% in the last year.
When deciding on your future home, it would be best to avoid areas with high traffic volume, foreclosures, and crime because your home could lose value. Qualities like good schools, up-and-coming neighborhoods, and local employment are indicators that your new house could appreciate.
5. HOME OWNERSHIP LENDS TO MORE STABILITY
Buying a home is a big step toward settling down and establishing roots in a community. Researchers find that not only do homeowners gain a sense of stability when they settle into their first home, but they also contribute to neighborhood stability. A study compiled by researchers with the National Association of Realtors shows that homeowners move less frequently than renters staying in their homes for longer periods of time. Between 2010 and 2011, only 4.7% of homeowners relocated, but 26% of renters moved, many citing housing-related reasons.
Homeowners are more invested in their properties and their neighborhood, which makes for a more stable and close-knit community. In areas with high turnover, it’s hard to know your neighbors, much less trust them to pick up your mail or feed your cat when you’re on vacation. Homeownership may offer stability and a neighborly ambience.
6. YOU’LL HAVE STRONGER SOCIAL TIES TO YOU COMMUNITY.
Have you ever wished you lived in one of those idyllic neighborhoods where you can borrow sugar from a neighbor and share a homemade pie with another? If you’re constantly moving from rental to rental, you probably don’t get to know your neighbors very well. Because most homeowners stay in their homes for longer periods of time, they’re more likely to form relationships with their neighbors and are more invested in their community.
A study published in the Journal of Urban Affairs found that homeownership gives residents a platform on which to connect with neighbors and increases their social capital. The reasons are simple – as a homeowner, you have a greater stake in your community and have the incentive to get to know your neighbors on a more intimate level.
7. YOU’LL FEEL MORE SECURE.
You won’t find homeowners desperately looking for housing after receiving an eviction notice. Unless the bank forecloses on your house, your home is yours until you decide to sell it. Each state has its own laws on tenant evictions, but in many cases a landlord can evict a tenant even when the tenant didn’t do anything wrong. For example, in California, landlords can evict tenants if their family wants to move into the property or if they want to sell, destroy, or repair it. A report by the Neighborhood Law Clinic at the University of Wisconsin shows that evictions increased 10% in Milwaukee County from 2010 to 2013. In San Francisco, evictions increased 38% in the same time period. Being a homeowner means that you’ll never have to move because of factors outside your control.
Do you really want your neighbors to hear your child’s morning meltdowns? Do your neighbor’s TV sitcoms frequently keep you up at night? According to the National Multifamily Housing Council, single-family units make up only 35% of rentals in the U.S., and 60% of rental properties are of two or more units, which includes duplexes, apartments, or condos. As any renter can attest, sharing walls with other tenants can be awkward at best and annoying at worst. Aside from noisy neighbors, renters also have to deal with meddling landlords who have access to their private space. In a survey conducted by mortgage loan company Freddie Mac, 86% of renters agreed that owning a home would give them more privacy than they currently have. The privacy that homeownership can offer is priceless.
9. PART OF YOUR MORTGAGE PAYMENT IS TAX DEDUCTIBLE
Owning your own home comes with more responsibilities and expenses, but the good news is that some expenses are tax deductible. Property taxes, private mortgage insurance premiums, energy-efficient additions to your home, and the interest that you pay each month on your mortgage can be deducted from your taxes. Although you’re on your own when it comes to maintenance and repairs, at least you can deduct a portion of your monthly housing expenses on your taxes – a benefit that renters don’t have.
10. YOU CAN CREATE YOUR DREAM HOUSE
When you purchase your own home, you have more control over the decorating and remodeling. In the survey conducted by Freddie Mac, 89% of renters said that being able to decorate their living space would be a perk of owning their own home. If you fantasize about customizing your dream house, purchasing your own home is the only way to make that dream a reality.
11. YOUR MONTHLY MORTGAGE PAYMENTS ARE MORE STABLE THAN RENT
Trulia’s rent monitor shows that rents increased by 6.5% nationally last year, but larger metro areas experienced even sharper increases. In San Francisco, for example, rent prices rose 15.5% from 2013 to 2014.
When you purchase your own home, your monthly mortgage won’t deviate too far from your first mortgage payment, although the percentage that goes toward interest and the principal will change over time. With a fixed-rate mortgage, the interest rate is fixed from the time you sign the loan. If you opt for an adjustable rate mortgage, the interest rate may start out lower than a fixed-rate mortgage, but will change depending on a specific index (which is determined by the lender). Other factors that may increase your monthly mortgage payment are local property taxes (over which you have little control) and home insurance premiums.
12. YOU CAN TAKE OUT A SECOND MORTGAGE
Your house is an investment and is most valuable when you’re paying off your mortgage and building equity. However, if you ever find yourself in dire straits, taking out a second mortgage on your home is an option that you would never have as a renter. When you take out a second mortgage on your home, you borrow from the equity you’ve already accumulated on your house, either with a home equity loan or a home equity line of credit. The second mortgage is basically a second loan in addition to your original mortgage.
Because you’re using your home as collateral for the loan, the decision to take out a second mortgage should be one that you weigh carefully. If you default on the loan, the bank can repossess your house, making all your hard work for naught. According to the 2013 American Community Survey, more than seven million Americans have taken out a second mortgage or a home equity loan. Common reasons why people take out a second mortgage are to finance major home repairs, the purchase of a second home, medical bills, or finance a child’s college education. Although taking out a second mortgage should be a last resort, homeowners have an advantage over renters because they can use their home equity if an emergency arises.
13. YOU CAN RENT YOUR HOME TO OTHERS
Contrary to what you might think, owning one’s first home isn’t the end of the road for many homeowners. Although homeownership is a long-term commitment, many homeowners go on to rent their homes when they purchase a second one, or even rent out extra space to other tenants. Zillow ran calculations to see where homeowners can earn more by renting out their home to tenants in comparison to selling. They found that homeowners who live in cities like San Jose could earn as much as $8,927 annually from renting out their home in the long-term. According to the 2001 American Housing Survey, 21.3% of people who owned second homes rented them to tenants. Unlike renters, homeowners can profit by renting their additional space.
14. YOUR KIDS WILL PERFORM BETTER IN SCHOOL
Researchers have found a positive correlation between homeownership and children’s academic achievement. Because most homeowners stay in their homes for a longer period of time, they provide a more stable home life for children, which in turn, impacts their academic performance. Researchers, Lisa Mohanty and Lakshmi K. Raut, found that children who change schools too often perform more poorly in school, which can probably be attributed to adjusting to a new environment, new curricula, and different academic standards. In a study published in the Real Estate Economics Journal, researchers found that children of homeowners performed 9% better in math and 7% higher in reading. While renters can attempt to provide the same stability for their children, some factors may be out of their control because they live in properties that aren’t their own.
15. YOU CAN HAVE PETS
If you’re an animal lover, your desire for furry companion may be thwarted by strict renting rules. Landlords may be flexible when it comes to birds and fish, but dogs and cats are often deal-breakers for more demanding landlords. According to an Apartments.com study, 72% of renters are pet owners, and two-thirds of them have had problems finding housing that accepts pets. Renting with a pet can also be expensive – more than 50% of pet owners were required to pay more than $200 annually for pet deposits. The American Humane Association survey reveals that the primary reason pet owners give up their pets is because of moving, which suggests that many could not find housing to accommodate their pet. Owning your own home is a surefire way to provide Fido and/or Whiskers a forever home.
16. YOU’LL HAVE SOMETHING TO PASS ON TO YOUR CHILDREN
A parent’s financial success can determine what school their children attend, the peers their children grow up with, their educational opportunities, their college prospects, their future career prospects, and their ability to grow wealth as adults. In a study published in the Journal of Housing Economics, researchers found that children of homeowners earned more as adults and were more likely to own their own home in the future. Many renters agree that homeownership provides children with benefits that they can’t gain from renting. In a Freddie Mac survey, 90% of renters agreed that a home was something that could be passed on to their children. If parents invest in their homes and build their net worth, it can greatly affect the outcome of their children’s lives.
Aviation Relocation has free tools that allow you to compare neighborhoods to find out which one is best for you and your family. Call us today at 833-RELO-AV8 or 480-309-1159 for more information. ACN