Let’s look at three myths that some (including the Wall Street Journal) have fallen for. Is it really cheaper to rent than to buy your own home?
Myth 1: The cost of renting is lower.
Fact: It is cheaper to buy than to rent according to a Zillo analysis of 35 metro areas if you are planning to live in the home for at least 4.2 years.
Homeownership remains cheaper than renting nationally and in all of the 100 largest metro areas … buying is 38% cheaper than renting nationally.
Trulia study
Myth 2: Homeowners have more expenses than renters.
Fact: Landlords do not pay the costs of property taxes or repairs – renters do. These costs are rolled into the rent. Although the costs are shared by all tenants of an apartment complex, the property taxes for a large apartment building will be greater than that of a single family residence.
Homeowners pay debt service to pay down their own principal while households that rent pay down the principal of a landlord plus a rate of return.
Eric Belsky, Managing Director of the Joint Center of Housing Studies at Harvard University
Myth 3: Investing the payment difference will give the renter more money.
If a renter invests the difference between their rent payment and a mortgage payment in the equities or debt market, would they be better off?
Fact: Remember, renters do not end up with a valuable asset that is also a leveraged investment – homeowners do.
Homeownership allows households to amplify any appreciation on the value of their homes by a leverage factor. Even a hefty 20 percent down payment results in a leverage factor of five so that every percentage point rise in the value of the home is a 5 percent return on their equity. With many buyers putting 10 percent or less down, their leverage factor is 10 or more.
Eric Belsky
The value of the average single-family home increased by 3.6% a year in the three decades through 2013, compounded annually, according to Freddie Mac. However, that 3.6% average annual appreciation is really an 18% return on cash to a home buyer putting down 20%.
Not to forget is that home ownership also creates a sort of forced savings plan. So in time, homeowners experience greater wealth accumulation compared to renters.
A Federal Reserve study in fact showed that the net worth of a homeowner ($174,500) is 30 times greater than that of renter ($5,100).
Fact: Don’t buy the myth!
It appears that even savvy investors fall victim to the media myths at times. Our experience in the real estate market helps our clients stay ahead of the myth and enjoy the reality of increased wealth.
Contact Skyrise Real Estate Group today so that we can share a true story that benefits you and your family tomorrow.
