Why do people say it's better to own your property as opposed to renting?

Question

The way I see it, it's better to rent. I rent a one bedroom apartment, and I've had no closing costs, don't have to pay for repairs, and I'm not tied down to anything just in case I need to move. Also, the money that I'm "pissing away" each month on rent is equivalent to the money I would be "pissing away" paying maintenace fees and taxes. Any money that I do have to invest I can put in the stock market. I have just as good of a chance to get 10-12% gains there as I do in real estate. So am I missing something?

Answer 1

Indeed. Valid pros and cons made by all. Owning a home vs owning real estate and being a landlord. Two entirely different animals. The property owner has several venues of wealth-building potential. You know what you get when you rent and renting is more appropriate for some people based on their situation. Given that one is in an historically average market for real estate, the owner invests, say, 10% [$10,000] on a $100,000 property. That money in the stock market, historically would grow at more than inflation provided the investor was well diversified and left the money in long enough--say 8% per annum over time. The property owner, on the other hand, has $10,000 invested, and depending on his/her real estate market, that property should appreciate at 4% or so annually. But, as shdblawyer remarked, the property owner is leveraged. He/she is controlling a $100,000 investment, with only $10,000. Here's an example, with simple numbers for simplicity's sake.If, in the first year, his/her property appreciates at 4%, [$4,000 on a $100,000 property]. That's a full 40% of his/her initial investment. Depending on the tax bracket of the owner, he/she will get tax benefits based on the amount of interest he/she pays during the year. If the owner is in a 28% tax bracket, and pays $5800 in interest the first year, he/she will receive approx $1600 in tax savings during that year [based on a $90,000 mortgage loan at around 6.5% interest]. Additionally, that property owner pays down a part of the principle with each monthly payment. In the above example, the principle paid during the first year is around $1000 [this increases each year as the mortgage ages]. This becomes equity in the property. So the property owner has 3 wealth-building vehicles at work during the year and his/her return on actual invested dollars looks much more interesting. $4000 in appreciation, $1600 in tax savings, and $1000 in equity--$6,600 in the first year, on a $10,000 investment. Very difficult to get that in the stock market without assuming loads of risk. On the flip side of the equation, there are risks associated with property ownership. The owner must be judicial and choose a property with minimal maintenance costs. He/she does that by answering certain important questions prior to buying. e.g. How old is the heating/air system? The roof? What are the normal maintenance requirements? For example is the outside of a two-story home brick and vinyl? [no maintenance] or will it need to be painted every 3 to 4 years? [much more expensive to maintain] They essentially do a risk assessment by looking at the aspects of the home which cost the most to maintain/replace, and minimize the risk by choosing those with newer roofs, heating/cooling systems, etc.

There are many sites around which detail these and more pros and cons and outline pitfalls to avoid when buying. Hope this helps in understanding some of the benefits of ownership.

Answer 2

In a word........appreciation. Forget all the speculation on what you can or can't get being a landlord. The cash flows may or may not be there from receiving rent. Living in a house vs. living in an apartment seems to be your primary question above. Say you purchase a 100,000.00 house now by putting down 10,000.00. The house should appreciate in value on average 3 or 4 percent a year (unless you live in high appreciation areas such as Florida, D.C. N.Y. LA, etc you'll get more). In thirty years, the house will be worth 280,679.00 (at 3.5% appreciate a year). With a 30 year mortgate you will by then own the house outright. By and large you can't get 10 to 12 percent in the stock market year in and year out. You'll probably average much less in the long term. The complete answer is diversify your holdings.....invest in a primary residence AND invest in various industries in the stock market. That way if one of your decisions ends up being a poor one, you have other investments to lean on for a return. Good luck.

Answer 3

It depends upon a lot of factors. For example, if real estate prices are depressed in your area, and rents are high, you're better off buying. Don't forget that real estate, like gold and other commodities, is a good hedge against inflation. Just think if you had bought real estate in California in the 70s! You'd be a millionare now. I bought a house 3 years ago in Utah when prices were depressed and interest rates low, and now the value of my house has increased about 20%!

On the other hand, if you can find a cheap place to rent, you might be better off renting and then investing the difference in the stock market.

Answer 4

You may be right, but don't look at just the money thrown away on rent. Look at the tax benefits. There are no tax benefits to renting, however there are significant tax benefits to owning. The most important of which is the deductability of mortgage interest. This means if you spend $10,000 a year on interest mortgage, the entire amount will be deducted from your taxes. You will get a lot more money back at the end of the year because of this deduction. However, the math may work out in your husband's favor if you are able to save up enough not have to take out mortgage insurance.

Answer 5

You actually have made some valid points.... however, your investments in the stock market historically rank poorer that they would in real estate. Not only is there a social standing to owning a home these days, but there are great financial advantages. I know... I own a real estate company and I can tell you that if you have any interest in becoming wealthy... study those that made it. Over 90% of the wealthiest Americans have much of their investments tied up in real estate. It provides them tax advantages as well as leverage when they want to purchase more property. Finally, how much money would you need to purchase $100,000 worth of stock? Answer: $100, 000. How much money would you need (typically) to purchase $100,000 worth of real estate? Answer: $10,000. See the difference. Leverage.

Answer 6

When you pay rent the money you put out pays for the mortgage of the property as well as all the repairs. You are better off buying your own property.

Answer 7

1. The tenant may not keep the house in good condition.
2. He may give you trouble by not vacating the house in time, by not paying the rent regularly
3. He may sub lent the home

Considering these problems, many people do keep the houses for themselves, some times even vacant.

Answer 8

it's better to build equity in property for yourself rather then make a landlord rich for example my family owned 3 apt. buildings in Chicago the renters over a 30yr. time paid for them all and we lived in one for free then they died and me and my sister inherited them i bought a house out right with the money then 3 yr. later took a loan to buy all my toys and day trade a lil so now with that money i can make about 500 to 2000 a wk. and work for my lil 680 a week pay check so invest in your future or invest in someone Else's it's up to you

Answer 9

right on pal....as the real estate bubble collapses over the next 2 years, you'll be able to pick up those $100,000 homes these people talk about for $10,000 free and clear....and NO payments...be patient.

I can tell its a bubble when everyone says 'buy real estate, it always goes up '

Answer 10

I think if you buy ,it would be better because paying rent is like losing money for something that never would be yours.