There can sometimes be a debate about buying a home versus renting a home. Owning is better in the long run because it allows unlimited access to equity in your home versus having no access to the equity you pay into your landlords home.
Let’s look at a scenario:
Subject A is interested in renting a home. They found a wonderful four-bedroom home that will cost her $3,500 per month.
Subject B is interested in buying a home. They found a house for $400,000 with a 4.4% interest rate for 30 years. The payment is around 2,000 per month. Let’s say for an additional $1,500 will cover real estate taxes, homeowners insurance, and miscellaneous costs. So they are also paying $3,500 per month.
Both the buyer and the renter are paying $3,500 per month.
Subject A gets a notification in one year that their rent will be increased by $200.00 per month. Subject B is now paying $3,700 per month.
Subject B gets a notification that their real estate taxes have been decreased by $300.00 per year. Subject B is now paying $3,325 per month.
Fast forward four more years:
Subject A has had her rent increased $200.00 per month, every year. So now their rent is $4,500 per month. Subject A has not earned any equity in the home that they are renting, but their landlord has.
Subject B hasn’t had an increase in real estate taxes or homeowners insurance. They are still paying $3,325. Within five years, Subject B has earned equity in their home.
Fast forward a total of ten years:
Subject A’s landlord loves them, so they now only increase the rent by $100 per month, instead of by $200. They are now paying $5,500 per month but still have earned zero dollars in equity.
PLOT TWIST – Subject A’s landlord now has $100,000 worth of equity in THEIR home. They decide to get a lower interest rate, refinance, and take the equity to use as a down payment for a house they will use to flip.
Conclusion: Whether you rent or buy, you are still paying into equity. The difference is when you own, you are investing in your equity instead of your landlords.
Subject B’s taxes and homeowners insurance incrementally increased, so now they are paying $4,000 per month.
PLOT TWIST– Subject B now has $100,000 worth of equity in their home. They decide to refinance to get a lower interest rate, refinance, and take the equity to use as a down payment for a house they will use to flip.
Conclusion: Owning a property gives you unlimited ability to access the equity in that dwelling. If you take equity once, pay it back, you can go back and get more equity.
Equity is the amount the house is worth, minus what you own. For example, if you own a property that’s worth $500,000 and you owe $100,000, you have $400,000 worth of equity.
EQUITY is why property ownership builds generational wealth. Another example: Say if you inherit a property C, in an undesirable neighborhood, and that dwelling is worth $100,000. The rents in that area are in the $1,200 range. You don’t want to live in that area, but there’s a house that you love within a better school district. That home cost’s $150,000, so take $100,000 worth of equity out of property C and then get a mortgage for $50,000 and buy your dream home. Then you can rent Property C for $1,200, and it will pay for the home equity loan and your mortgage, and now you are living rent-free.
EQUITY is KING, and THAT is also why redlining was a thing. THAT’S why owning property is important.
8,542 total views, 4 views todayFollow Me!