b&b68 Should you rent or should you buy?
It’s probably the question I get most asked by clients – should I buy a house or keep renting? In this week’s show, we discuss the history of home buying in the United States, how and why it’s become part of the American Dream, and the industries and parts of the economy that rely on Americans being homeowners.
Then we talk about when it makes sense to buy and when it makes sense to keep renting for you and your individual situation.
Mortgaged backed security is basically a collection of mortgages that have been re-packaged and sold on the open market to investors in the form of a bond…basically, they create a liquid investment for something that normally takes 30 years to pay off.
Should you keep renting or is it time to buy a house…is the most common question I get when people come to me.
Homes are a liability and not an investment…unless you’re making money off of it.
You know who makes money in real estate? Realtors!
76% of U.S. citizens believe that owning your home is necessary to be considered middle class.
The federal housing administration actually insured all of the mortgages on the secondary mortgage market, so you may have heard of FHA loans and that’s where it comes from. The Federal Housing Administration actually insures loans so if somebody defaults on the mortgage the FHA will have your back, as a bank. So that gave banks confidence to lend money out and issue mortgages to people so they could buy a house without having to have the cash up front. So that gave people the ability to own homes, and it was the first time in the United States that you could do that and have it be affordable.
My reasoning for why I think government should be more involved than not, just in general, is because businesses that exist as a business have a need to make money more than they have a need to service on an individual level, and the government at least…is supposed to be by and for the people.
The American Dream and the concept of homeownership being part of the American Dream is still a huge part of American culture, and the government completely supports it….you can deduct your mortgage interest on your taxes. $100 billion of mortgage interest was deducted in 2009.
There is a very stark racial divide…and it started with overt racism early on, of course. White people were just issued mortgages, and Black people and brown people were denied mortgages, way back in the day. That’s just what happened. If you were white you could buy a house. Period. And we see it today. It’s a lot more subtle, but just looking at the stats 43% of Black people own their homes. 73% of white Americans are currently homeowners.
This is where the emotional side of homeownership comes in and I completely understand that side of it too. It’s just like, you know what, I need to feel like I own something that I can pass on, and something that can’t be taken away from me.
Peace of mind is worth a lot to folks…It’s worth more than healthcare. It’s worth more than actually keeping you safe and healthy: feeling like you’re safe and healthy…And a big part of that is homeownership.
Owning a home is not necessarily good or bad.
One of the pros [of owning a home] is that your mortgage amount never changes, so you basically stabilized what would be a rent payment that goes up every year, potentially. The downside is that you will have property tax for the rest of your life, you always have to pay insurance on the house, and, just to be honest you guys, owning a home is always a little bit of a money pit…Maintenance on a home is about 1-2% a year.
One of the pros of renting is you can just leave. If you don’t know where you’re going to be in the next year or two, or five years, rent! …It’s okay, you’re not throwing your money into a hole, you’re not giving your money to somebody else. You’re doing that already with a home…Everything is a money pit because you have to live somewhere.
There is some instability associated with [renting] it, but with that instability comes a different kind of freedom, and that freedom is the ability to just move wherever you want, to be able to travel on the regular, to be able to travel for long periods of time without having to worry about owning this property and maintaining it and taking care of it. There’s something about renting that gives you a different kind of lifestyle. It gives you a lifestyle where you can move around and you don’t have to maintain anything.
The cons of renting are that you can’t paint your walls and get your money back….the cons of renting are it’s just straight up not yours.
The questions to ask yourself: How long are you going to be in this city or town? Are you prepared to have this be a home base for the next 5-10 years? Are you willing to take on the responsibility of taking care of it even if you don’t live there or selling it which is a whole nightmare in itself? And also financially, it’s not just the mortgage that you should compare to what you’re paying in rent. Compare the mortgage, compare the potential homeowners insurance, compare the property tax, and compare the maintenance–add 1-2% of maintenance…and the other thing for you to consider is, is there a way for you to make additional income on the property? Because like I said, a home is not an investment unless you’re actually making money off of it today….The other thing is, if you have an emotional reason for wanting to own a home, do it.