What if you discovered that real estate isn’t as good of an investment as everyone says? I know, I know, everyone’s heard the story of some aunt who bought her house in 1970 for $100,000 that she sold last year for $800,000. For most people though, that’s not quite how it works.
Most people are unaware of all the additional costs of buying a home beside the sticker price.
Here’s the truth on whether it’s better to buy or rent a home.
Beware of Propaganda Around Real Estate
Have you ever given serious thought to where your beliefs about buying vs renting a home came from?
This is important to consider, because many people decide to purchase homes based on belief systems that were given to them by society.
Our peers reinforce this belief by praising those of us who purchase homes, and look at renters as failures. It’s all BS.
To know where this belief comes from we need to look at who’s incentivized to get us to buy homes. The answer to that is simple. It’s the money-hungry people within The National Association of Realtors.
They want you to buy, so they create powerful propaganda that sells messages like “real estate only goes up”. They’ll even go as far as to say that when the market goes up it’s a good time to buy, and when it goes down it’s also a good time to buy.
Wait… are you telling me it’s ALWAYS a good time to buy real estate? That’s simply not true.
But they aren’t the only ones incentivized to get you to purchase a home. Our own government is also responsible. They offer incentives like tax write-offs to get you to make this extremely hefty purchase.
From these propaganda machines we buy into two insidious myths that only serve to fatten the pockets of those who benefit from our buying.
Buying vs Renting Myths
Let’s look at a few of these myths around buying vs. renting a home and why they can steer you in the wrong direction.
Myth #1 - Renting a house means you’re just paying your landlord's mortgage
This myth has led so many people to buy a house before they were ready because it makes them think someone else is getting the better end of the stick. This myth is rooted in a misunderstanding of how profitable real estate is.
Here’s what some people think being a landlord is like: a landlord owns a place that costs them about $3,000 a month, and they just add on 10% and laugh all the way to the bank.
That’s not how it works.
Your landlord can only charge you what the market will bear.
This sometimes means the landlord is making more than their expenses, but a lot of times they’re not even covering their expenses. And you want to know the crazy part?
Most of them don’t even know it.
That’s because running all the numbers and adding up all the expenses can be really difficult. These are called phantom costs. How do you calculate the cost of a roof that costs $25,000 to repair but only happens once every 20 years? That’s tough to calculate!
Just remember–your landlord can’t charge you whatever they want, they can only charge you what the market will bear.
Myth 2 – If you’re paying rent, you’re throwing money away
This is one of those sayings that sounds good, but doesn’t really mean anything.
If this is true, then renting means I’m throwing away money with nothing to show for it? Because when I pay rent I have a roof over my head, and a great view. Rent gets you a home to lay your head in. And this is the same when you pay for essentially anything.
When you go to a movie, you pay $10 and watch the movie. What do you have to show for it? You love the movie, that’s what you have to show for it!
When you buy food what do you have to show for it? A delicious meal!
It’s the same thing with rent. You’re paying for a service and you’re getting exactly what you pay for. It’s as simple as that.
Before You Buy A Home, Run The Numbers
I know I’ve been giving home ownership the beatdown in this article but in truth, there’s nothing wrong with buying vs renting a home as long as you buy for the right reasons, and are ready.
Purchasing a home you can afford is a crucial element here. Overextending yourself can have serious repercussions. In episode 69 of my podcast, I spoke with a couple that has a big income, but a big problem with affording their home.
The right reasons can be you want more space for your growing family, or you want to do projects like knocking that kitchen wall down. Those are all good reasons to buy a house.
But whatever your reasoning, make sure you run the numbers.
Don’t think of your home as an investment, but simply a part of your Rich Life. Taking this perspective will help you make decisions like buying a house for the right reasons.
And if you happen to be a renter who’s reading this article you’re in luck! There’s one major benefit to renting that I neglected to include in this article, and that is you can negotiate how much rent you pay per month.
I’ve helped thousands of my students save thousands on rent every year. All you have to do is follow my step-by-step process. Check out my post on How to Negotiate Your Rent here.
FAQs About Buying vs. Renting
Is it better to buy or rent a home?
Whether you should rent or buy a home is a question that has many answers. The choice depends on your personal situation, your finances and savings, and how you live.
The cost of renting is usually lower than the cost of buying a home. However, when you purchase a home, you build equity in the property that can help you finance other purchases later on down the road (like retirement). If you have the money to save up for a down payment, then purchasing a home may be more beneficial than renting.
Is homeownership a good investment?
Buying a home can be an excellent investment, but there are a number of factors that can affect how well the investment performs. Location, the economy, maintenance, and environmental concerns all play a role in determining how much your property is worth. Keep in mind that these factors are always changing and that it’s never static; things can change quickly.
Is renting cheaper than buying a home?
Rental prices are fixed, meaning you know what your cost is going to be upfront. This can make it easy to plan your finances and budget accordingly. However, if you prefer a lavish lifestyle and require more space than average, renting may actually be more expensive than owning a home.
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