5 Compelling Reasons Home Ownership Beats Renting

Posted by John Sabia on Wednesday, August 28th, 2019 at 1:55pm.

photo to own instead of rent - www.johnsabia.com/blog

Home ownership offers tremendous financial advantages.

A research paper Homeownership and the American Dream, by Laurie S. Goodman and Christopher Mayer of the Urban Land Institute explained:

"Homeownership appears to help borrowers accumulate housing and nonhousing wealth in a variety of ways, with tax advantages, greater financial flexibility due to secured borrowing, built in 'default' savings with mortgage amortization and nominally fixed payments, and the potential to lower home maintenance costs through sweat equity."

5 Significant financial advantages of owing a home

1. Housing is typically the one leveraged investment available

Owning a home allows for amplification of any appreciation on the home value by a leverage factor. A down payment of 20% results in a leverage factor of five, meaning for every percentage point your home increases in value your return on equity is  5%.

2. You're paying housing expenses whether you own or rent

While renters aren't saddled with the added expense of real estate property taxes and home repairs directly, you have to consider the landlord has already added these costs into the rental payment - and possibly making a profit.

3. Home Ownership is typically a "forced Savings"

Research has proven that homeowners have a net worth 44 times greater than that of a renter. Recent estimations show that a family purchasing an average priced property in January of this year has the potential to increase their wealth by $42,000 over the next five years.

4. Home ownership is a protection against inflation

House values and rents tend to go up at or higher than the rate of inflation. When you are a homeowner, your property's value will protect you from that inflation.

5. Significant tax advantages

The new tax reform bill puts limitations on some deductions on certain properties. However, in the research referenced above, the authors explain:

"...the mortgage interest deduction is not the main source of these gains; even if it were removed, homeowners would continue to benefit from a lack of taxation of imputed rent and capital gains."

Final Thoughts

From a financial angle, home ownership has and always will be preferable to renting.

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John Sabia

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