The typical American dream may vary slightly from person to person but has remained a constant through the years. Get a good job, start a family, buy a house, and work your way toward a financially secure retirement. However, with an ever-changing economy, slow-rising wages, and skyrocketing costs of living, more and more Americans are realizing that the typical American Dream doesn’t quite work for them anymore.
It’s no secret that the price of homes in the U.S. has increased dramatically over the last 10 years and for many families, the option feels unattainable. Many are turning to renting a home instead of owning it in an attempt to lower monthly costs and long-term debts. So what are the pros and cons of renting vs owning your home? Which option is best for you? Let’s take a closer look.
Owning a Home
There are many reasons to own your home. Depending on your circumstances, goals, and financial plans, buying a home may or may not push you further toward success. With the national rate of homeownership reaching almost 65%, it’s clearly the norm for many Americans. However, it is not without its drawbacks. Let’s take a look at the best and worst parts of owning a home.
1. Historically Low-Interest Rates
Buying instead of renting may be a good idea if you can get a low-interest rate. While it may seem like a slight difference in your mortgage, it can make a huge difference in your monthly payment. Interest rates are currently at a historical low, making it a great time to purchase a home. Getting a low 30-year mortgage rate could save you hundreds of dollars a month for years to come.
2. Build Equity From Rising Property Values
Home values are only expected to continue rising in the future, meaning homeownership could be a great long-term investment. As property values increase and you continue to make mortgage payments, a portion pays your loan down each month, building more equity in the home.
3. Tax Benefits
Being a homeowner gets you annual tax write-offs, mortgage interest payment deductions, and other potential deductions depending on your situation. These write-offs and deductions can add up to save you a lot of money that you wouldn’t save as a renter.
When people buy a house, they tend to stay longer than if they rent. Buying a home gives you longer-term stability and security.
1. High Upfront Costs
When purchasing a house, closing costs can add up and take up to five years to recover. These costs average around 2-5% of the purchase price, with the fees, property taxes, mortgage insurance, home inspection, first-year homeowner’s insurance premium, title search, title insurance, and points, which are prepaid interest on the mortgage.
2. High Maintenance Costs
Since the house is yours, all maintenance work is your responsibility. There is no Property Supervisor to fix the leaks or electrical problems that come from the normal wear and tear of a house. The labor and costs are your burdens to bear.
3. Decreasing Property Values
While equity and housing values are on the rise, it may not always be that way. Whether it be another housing crisis or depreciation from lack of regular maintenance, your property value can decrease, leaving you feeling trapped with less equity than you expected.
4. It Takes Time to Build Equity
Buying a house and making monthly payments is a long-term commitment. You will likely not build much equity for the first few years, since most of your payments go toward interest, which can cause frustration for many homeowners.
Renting a Home
With over 42 million units being occupied by renters in 2020, it’s clear that many people are finding the benefits of renting to outweigh the benefits of owning. While renting can be a great option for some who are not financially or personally ready for a monthly mortgage and other factors that go into homeownership, it can have its downsides as well. Let’s take a look at the best and worst parts of renting a home.
1. Monthly Payments May Be Lower
Mortgages for similar homes or apartments in your area may be more costly than monthly rent. If a mortgage is too expensive, renting may be the better financial solution.
2. You’re Not Responsible for Repairs
When you’re a renter, the property owner is in charge of maintenance. This means you don’t have to worry about paying for labor or parts when something breaks from normal wear and tear on the property.
Being a renter typically comes with a lease for a set amount of time. If you want to move, it’s typically easier to wait for a lease period to end than to deal with a mortgage. A house can take much longer to sell than you’d like, and if you move before it sells, you still have to make the monthly mortgage payments. By renting, you avoid that hassle completely.
4. Low Upfront Costs
Renting a new place usually means paying a security deposit, which is typically one to two months’ rent, and the first month’s rent. Unlike when buying a house, you don’t have to dish out a huge amount of money or finance the costs when renting. You also don’t have to worry about HOA dues, which are monthly fees you typically pay when you own a home in developments with homeowner’s associations.
1. No Equity Building
You will have built no equity when you move out of your rented property since the house is not owned by you.
2. Rent Can Increase
Your monthly rent costs may be one amount when you sign the lease, but they can always go up when you go to renew it. This is at the landlord’s discretion and may have a significant impact on your finances.
3. No Control Over Cosmetics or Updates
As the tenant, you typically have no control over the overall appearance and structure of the house. Even painting may require you to get the owner’s approval. If appliances or designs are outdated or not to your liking, you will be unable to change them yourself unless the landlord permits it.
4. No Credit Score Impact
While paying a mortgage on time improves your creditworthiness, paying monthly rent does not have the same benefit.
What About a Sale-Leaseback?
So you’ve gone through all your options and still can’t decide which one works for you. Well, we have a third solution that may just be the middle ground you’re looking for.
A sale-leaseback allows American homeowners to sell their homes without having to move out. You can remain in your home as a renter. The sale-leaseback company pays off your mortgage and you receive the cash you need.
A sale-leaseback brings you the benefits of owning with the flexibility of renting. You just pay monthly rent and renter’s insurance, and the rest is taken care of. You can even collect any remaining value and appreciation on the home if you choose to move.
So why choose a sale-leaseback over traditional owning and renting?
1. Even More Flexibility
A sale-leaseback solution provides you with a lease to rent your house back. The lease is flexible and geared toward your goals.
The upside of home-owning is that you have equity. The downside is that you can’t easily access it. With renting, you collect no equity. But with a sale-leaseback, you have the best of both worlds. You convert the equity you’ve been building up for years into cash. You get to stay in your house as a renter with money and flexibility.
3. Lower Monthly Payments
One of the hassles of home-owning is that you have to continue making costly mortgage payments, homeowner fees, HOAs, and property taxes every month. With a sale-leaseback you only pay monthly rent and renter’s insurance, which can often be cheaper than your mortgage payment.
4. Benefit From Appreciation
Typically, you have to own a home in order to get appreciation from it. However, with a sale-leaseback, you can still access it even though you no longer own the home. If you choose to move out, you can sell the house on the open market. Any appreciation on the property is yours to keep.
You No Longer Own the Home
The obvious downside to a sale-leaseback is that you no longer own the home once the transaction is completed. You can no longer build equity and will have to pay monthly rent. While a solution can include an option to repurchase the property, the rent you pay does not go toward that option.
While Americans have plenty of options when it comes to living situations and finances, many of those options are exclusive and outdated. They don’t provide the flexibility and financial freedom so many people are in search of. A sale-leaseback can serve as a new and improved way to get all the benefits of home owning and renting while giving you the money you need to accomplish what you want to.
While owning a home has always been defined as the American Dream, but as the price of homes increases, it’s clear that times have changed. You should be able to keep your home and benefit from your home equity. Talk to a financial advisor to learn more about your options.