Why Renting Will Make You Poor In The Long Run

Why Renting Will Make You Poor In The Long Run

When I was young and renting, I always felt like I was wasting money when I went on vacation. First, I was paying for the vacation but I was also paying rent on my apartment. That to me was a high price for what was a storage unit. There are a few times when paying rent make sense. You are only going to be in the area a year or two, you move to an area and don't have time to search for a home and want to take some time to find the right home, or you are not sure if you are going to stay there. Whether you are young and single, or older with a family, renting just does not make sense if you have settled down. Don't let the recent downturn scare you. I am old enough and from a state where downturns are not uncommon (FLA) but housing prices rebound over time and if you are paying rent you have nothing at the end of the day. Let me give you an example from an experienced landlord (me). You rent one of my houses and are paying me a modest $20,000 a year (That is modest for the D.C. area in most cases). At the end of the lease term, whether one year or five years from now, what do you have? Nothing! The landlord keeps the cash flow from the rent and the appreciation. Even if there is no appreciation you are still better off buying if you plan to live in an area for several years. Why? Because as you pay down the mortgage, the difference between what you paid and what you owe is yours. If there is any appreciation, that is yours too!. You then take that money difference and put it into a larger home as your family grows. In some cases you may live there all your life and the equity will help fund your retirement. 
A couple of important things to note. The U.S. government promotes home ownership. You get a tax break on the interest and taxes. When you rent, the landlord keeps that. There are also plans for first time home buyers. Your mortgage specialist can help you there too. If you need a referral for a mortgage broker, contact me. 
Most of the wealthy people in this country obtained all or part of their wealth in real estate. For most Americans, the equity in their homes is their largest source of wealth and an important part of their retirement plan. 
 I have met potential clients only to have them tell me they were going to rent until they retire. I am glad they will buy eventually, but overall they could do much better if they ran the numbers and looked at their plans to stay in an area before just renting. In a worst case scenario, many of my friends and clients have had to move due to government or military orders. They rented their home and had a qualified property manager handle all aspects of the rental and send them a check each month. I have had others sell their home only to return and not be able to buy a home as nice as the the one they left because they sold it when they should have rented it for three or five years under the scenario above. 
Finally, interest rates have moved up in the last year or so but they are still low enough to make buying a home  cheaper than renting. Take it from a landlord who tells his tenants to buy (and I have helped some do so),.... buy don't rent. If you need property management in the case of an unexpected move, I can help you there with a referral also. Want info while working out on the treadmill, check out his podcast.http://tomrobinson.podbean.com/e/renting-versus-buying-why-pay-someone-elses-mortgage/


Michael Lorino Headshot
Author:
Phone: 703-991-8762
Dated: June 23rd 2014
Views: 3,271
About Michael: Michael was commissioned a 2nd Lieutenant in the U.S. Marine Corps in 2001. He has served around the...

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