Why Pay Rent When You Can Build Equity
We all need a place to live, right? Food and shelter are two of our most basic requirements and while eating habits vary from person to person having a place to live is not an option. It just depends upon where someone lives and why. There are two types of residents, those who own and those who rent. Both pay a monthly sum for the benefit of having a place to live but there are also two types of residency…owning and renting. Let’s look at why building equity over time is a better option than renting over time.
As millennials grow older at some point they will stop renting and start buying. Even if the monthly mortgage payments are the same or even lower than what they’re paying in rent. Early in someone’s earnings career, renting might be preferable for a shorter period of time, giving the individual time to decide where to put down roots, who to work for and gain stable employment. Yet once those decisions are made and the individual is ready to settle down, even for just a few years, it pays to take a closer look at renting instead of owning.
When you rent, you have a place to stay for as long as your lease agreement allows. Each month you pay your rent and go about your everyday life. The property you’re renting however increases in value over time. The difference between the mortgage on the property and the current value is the equity belonging to the owner. If the mortgage balance falls over time and the value increases, equity increases simultaneously. But if you rent, it’s the landlord that gets the equity, not you. In fact, it’s your rent that’s paying not just the landlord’s mortgage but also the property taxes, insurance and maintenance on the property. It’s quite a deal for the landlord. The landlord makes a little money each month from the rental and has all the associated expenses paid for.
But why can’t you turn the tables? Why can’t you buy your own home and quit paying rent and building equity over time? I know it might seem a bit too much at first glance to jump into home ownership but that’s really because you’re not fully aware of how easy it really is today to qualify for a home loan. That’s something I can help you with over the phone.</p
And when you’re ready to sell your first home a few years from now and move up to a larger home, the equity you’ve built up over the years can be used for your down payment and closing costs for your next mortgage. You can sort of think like your mortgage payment each month is a savings account because you’re gradually gaining equity over time doing nothing more than what you would otherwise be doing by sending in a rent check each month.