I was always told that owning a home was a smarter long-term financial decision than renting. But recently, I’ve seen financial Twitter and TikTok mini celebrities preach that renting is the better answer.
Seems like ditching the American dream in the name of flexibility and short-term ease is trendy right now. ☹
When I watch these 19-year-old Twitter and TikTok financial “experts,” I am either cringing, wishing I could report them to the SEC, or both. I have heard some HORRIBLE advice on these platforms. This leads me to believe we should all be careful who we trust on the internet.
Owning a home is better for your long-term financial plan because:
- You may have more space for a lot less dollars
- You will build equity that you can use in the future
- You have freedom to improve your own environment
- The cost of incidental repairs and maintenance is better than making a rent payment for the rest. of. your. life.
I will note that some people have unique circumstances that cause renting to be more prudent. I will address those circumstances later.
1. More space for a lot less dollars
Median monthly mortgage payment: $1,100.
With property taxes, home insurance, and HOA dues, the median monthly payment is brought up to $1,500.
So… interestingly, the averages are the same. Here is the difference though. The average new home is 2,687 square feet while the average apartment size is just 882 square feet!
That means average homeowners are getting 3x as much space as renters for the same cost! Plus, homeowners generally also have a lawn to enjoy and free parking… I can’t say the same for many apartments. You definitely get less bang for your buck with renting.
** Bonus point ** When you have a fixed mortgage, you know exactly what your mortgage payment is going to be for the next 15-30 years of your life. Who knows what your rental increases will be? When we rented, our rent payment increased every. single. year.
2. You will build equity that you can use in the future
It’s no secret that you never get your rent money back. The entirety of your rent check leaves your bank account never to be seen again.
Not so with your mortgage payment. Now, in the early years of your mortgage, a significant part of your monthly payment does go to interest. However, each and every month, there is a portion that goes to building equity – aka increasing your wealth.
You can use this equity to:
– Borrow against for future home improvement projects
Warning: DON’T USE YOUR HOME AS A CREDIT CARD. However, I do support using the equity of your home to enhance your home’s value through improvements.
– Fund your retirement
For many people, their largest asset in retirement is their home. Once their retirement funds run out… what are they to do? If you have home equity, you can sell your home and use the proceeds to pay for rent. By this stage in life, some retirees may not have the physical ability to care for a home anyways.
Alternatively, you could consider a reverse mortgage. Reverse mortgages got bad reputations back in the day, but they can actually be a wonderful tool for some people.
3. You have the freedom to improve your own environment
We rented an apartment for about 4 years. It was fine… But there were a lot of rules.
– No curtains unless they had a white lining
– No wall hangings unless using the small picture nails
– If you painted, you had to paint it back to white before you left (who wants to do that??)
– No guests can park in the lot…
Obviously, I couldn’t make improvements like replacing the carpet, fixing the gouged countertops, or replacing the torn blinds. That was the owner’s responsibility and prerogative.
It is very empowering to be able to control your personal living environment. If there is something that I don’t like, I can just change it. The freedom to make improvements also comes with the responsibility to maintain and preserve… and I think that responsibility has made me a more equipped person!
4. The cost of incidental repairs and maintenance is better than making a rent payment for the rest of your life
Yes, owning a home does come with costs for repairs, utilities, and property taxes. These expenses are basically unavoidable… call it the cost of being alive, I suppose. However, in most states, these costs are relatively affordable – certainly much cheaper than renting a comparable space.
Therefore, the pressure put on your portfolio to provide for your living expenses is generally much less when you fully own a home! You can use your portfolio to cover expenses that are more exciting and fulfilling than a rent payment.
Notice that I never said that your home is an investment. While your home can and often does gain value, it is generally considered a consumer use product. A home is first and foremost meant to enhance the quality of your life. If being a homeowner doesn’t do that for you, you have some more argument in favor of renting. It can also be wise to postpone buying if you are working on improving your credit, trying to save for a down payment, unable to care for a home, or unlikely to live in the same location very long.
There are definitely a lot of opinions on this topic, so let me know what you think on the matter!