Five Reasons to Stop Renting and Start Buying
If you’re part of the Millennial generation (typically defined as someone born between 1977 and 1992), the renting vs. buying landscape is drastically different for you than it was for your parents and their peers. That’s leading many Millennials to ask themselves the age-old question: should I rent a home or should I buy?Beyond common-sense justifications like paying for something you own vs. lining a landlord’s pocket, today’s hard economic data seems to favor owning. Trends can come and go, but numbers don’t lie.
With that, here are a few reasons why, for Millennials, being a homeowner trumps being a tenant.
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Renting takes a bigger chunk of your income.
A recent RealtyTrac study found that, in the majority of counties and communities it surveyed, buying a median-priced home was more affordable than renting one. The study took into account three-bedroom properties in a sampling of 543 counties across the nation, and revealed that, in at least 68% of these counties, owning was more affordable. Specifically, renting in these communities required about 27% of median household income, while owning a property of similar size required only 25%. And sometimes, buying a home can save you more than money. If the home of your dreams is part of a managed community, your association or property management company may take on many of the hassles of maintenance – and that’s priceless! So if you want to spend less on housing and more on living, owning a home just may be the better alternative.
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Rents are increasing in communities with more Millennials.
Unfortunately, if you’re a Millennial, rents are higher in markets that typically attract you and your peers – in fact, in the top 25 counties that saw the largest influx of Millennials, rents increased 3% year over year from 2014 - 2015. Of course, home prices increased as well (an average of 8% in these markets). The difference? If you rented in these markets during that timeframe, your costs went up. If you owned a home in these markets during this same period, the value of your home increased.
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Owning puts financial trends in your favor.
Demographic indicators point to increasing numbers of households headed by Millennials in 2015 and beyond. The economics of this are important – the increased demand for housing means landlords will be able to charge higher rents. But it also means that builders and owners will begin to price homes higher as well – an increase of valuation that you would get to enjoy as an owner. Buying sooner rather than later will put you on the forefront of this trend.
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You have more control.
You can probably tell from the data you’ve seen so far that real estate prices can fluctuate. Rents go up and down, and home prices do, too. But when you buy instead of rent, you have more control. With a traditional mortgage, your monthly cost for housing is locked in at the same amount for the life of the loan (typically 15-30 years). This protects you from the potential roller coaster ride of rising and falling rent prices in your market. After all, the more predictable your budget, the better you can plan for your financial future.
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You’re investing instead of spending.
This is probably the biggest reason to buy, and it holds true for people of all generations. Paying money towards a home you own means you’re allocating funds toward an asset that, historically, will appreciate. Also, if the home is located in a managed community – especially one managed by a professional property management company – there’s a commitment to protect your property values. On the other hand, spending money on rent buys you shelter for a month, but it does nothing for you from an investment perspective. In fact, most landlords own properties as investments, which means if you’re renting, you’re helping to secure the owner’s financial stability rather than your own. Putting that money into your own investment will go a long way toward solidifying your financial future.