Is it smarter to buy than to rent?
Renting provides a high level of flexibility to an individual, but in many cases it may also come at a cost. Rather than putting equity into a landlord’s pocket, building equity in a property you own can lead to a higher net worth in the long run. Tax benefits associated with a mortgage are one of the advantages of getting into a home, but the real wealth-building advantage appears to be in the long-term gain in value.
It has been said that buying a home may be one of the smartest financial decisions a person could ever make. The Federal Reserve’s Survey of Consumer Finances has consistently found a noticeable gap between
the wealth accumulated by homeowners compared to that of renters.
|Average net worth of homeowners vs. renters|
|$80,000 and up
$50,000 to $79,999
$30,000 to $49,999
$16,000 to $29,999
Source: VIP Forum, Federal Reserve Board
Home ownership builds wealth through:
- Paying down part of the principal balance each month – you could look at it as a “forced savings” plan, and
- Appreciation – the increase in the home’s value over time.
The earlier you get in the game, the quicker you can get that appreciation working for you. Of course, any asset has its ups and downs but, over time, owning a home has historically shown to be a great way to build long-term wealth.