I used to think that owning my own home would be too much work, too much responsibility, or that it would mean less freedom to move around or do what I wanted to do in life. I later learned that (done right) almost nothing could be further from the truth. More importantly, this mantra is spread around (implicitly or explicitly) by some landlords whose incentive is to keep people renting from them (and profiting off of them) for decades or more. Now don’t get me wrong, I believe real estate investing (and being a landlord) is a powerful thing, but at the same time I want to advocate for renters to have more power in life. This means getting out of the rent cycle and buying.

The Trap

I call renting a trap because for so many people it puts you into a position of complacency, not having to deal with the responsibilities of home ownership (which aren’t that bad for the most part) and therefore not getting the benefits of home ownership either, all while also getting stuck with rising rents (i.e. – inflation), therefore making it more difficult to save and invest in a home and reap the rewards. If you believe you “can’t do it” or “It’s too hard” then you might just let your credit go to the dirt for a time (for example), or you might spend your hard earned money irresponsibly, deciding not to put money away that would otherwise be a key to your bigger goal of financial freedom and time freedom.

Also, renting in one specific location can be a trap because as inflation increases, and things get more expensive, it can become increasingly more expensive to move to another rental home when you might need to. This is especially the case when wages are not keeping up with inflation rates. Let’s say you have been renting for 4 years and all of a sudden your landlord decides not to renew your lease, or they decide to renovate and drastically increase rents afterwards (essentially telling you to “pay up or move out!”). What do you do? If you haven’t been saving, and you wind up being forced to move, you might wind up having to go into debt in order to move into a new place that is more expensive than the previous one; and on, and on, the cycle goes. It’s a trap I tell you!

The Escape

There is a simple path out of this mess. Though not always easy, it is doable I believe for most. I wrote an article on my blog called “10 Not So Common Ways to Save For a Down Payment“. So, I won’t go into detail about that here but the basics of escaping the rent trap are 3 fold:

1) Down Payment

2) Monthly Income

3) Credit

That’s pretty much it! Many renters don’t realize that not only is owning their own home far more powerful (and advantageous) than renting but that escaping the rental game is easier than it first appears. It just takes small steps each day to get there.

Set a budget and stick to it, and if your current job doesn’t pay enough to save up, consider looking for opportunities to increase your income. Some examples are: working overtime, applying for a higher better paying position in the company, starting a side hustle, going to work for the competitor, or changing careers for something that has the potential to pay more down the line. First time buyers typically only need 3%-3.5% down to buy a house (not including closing costs but there a possible ways of reducing those). Also, gift funds from family or friends can also help.

In terms of credit, there are tons of resources online for fixing it. In general though, if your credit is above a 580 you stand a good chance of getting into a home (depending on your other financial and credit factors). However, it’s more preferable to get your score above a 620 (and loan pricing tends to get really good when it’s above a 740). If you need help with this let me know. I can help and I won’t charge you a dime.

One other thing, if your rent is so high (relative to your income) that you believe it is preventing you from saving up to buy your own home, consider shopping around for a cheaper place to live (temporarily). Check the ads online each day. Talk with family, friends, and co-workers about your goal, and maybe call a realtor to see if they can find you something that fits your need. Heck, you might even find someone you know who would be willing to let you live with them for free (or close to free) for a time. You won’t know until you try.

The Power

In a nutshell, here are my main bullet points for why owning is way more powerful than renting.

• Equity Building

Equity is the difference between what you owe on your mortgage loan (if you have one) and the value of the home if it sold today. It’s sort of like a savings account that keep growing on it’s own over time (generally). If you are paying rent, you are essentially throwing that money away (no equity build). But, if you are paying a mortgage on a home you own it’s a much different picture. With each mortgage payment you make you are essentially putting money into an appreciating asset savings account (since the overwhelming majority of the time, homes go up in value). This is powerful because you can potentially borrow against this equity to do things like invest in more real estate, put kids through college, pay off debt, or upgrade your home – and mortgage loans are typically far cheaper in rate or cost than nearly any other type of loan out there.

• Cashflow

If you own your own home, you most likely have the ability to rent out a room or two (or to rent out the second half of a duplex – this is called House Hacking) in order to cover a portion of the mortgage payment. Let’s say your mortgage payment is $1,600/mo and you rent out one of your rooms for $1,000/mo. This now means your effective mortgage payment is only $600! Even more, if you own a duplex and you rent out one half of it for $1,600/mo you are essentially living for next to free! Now, if that’s not power I don’t know what is.

• Debt Pay Down (more equity)

As you make your mortgage payment each month the debt that you owe goes down. This then increases the amount of equity you have in your home (generally speaking), therefore giving you even more power down the road if/when you decide to sell the house or pull cash out.

• Tax Write-offs

I’m not a CPA. So please consult your tax professional before making decisions here, but it is generally known that owning a home allows many people to write off the interest they paid on their mortgage payments from their taxes. Also, if you own rental properties it is also generally known that you can write off what’s called “depreciation” over 27.5 years of owning that property. If you own a home and fall into one or both of these categories: Power!

• You Are The Landlord

Yep, you get to call the shots when you are the landlord. You set the rules and therefore you get to determine what the rent is, who rents from you, if/when rents go up, and so on. As long as you are following federal and state law (and landlord regulations) you are now in a position of power, whereas when you were renting your landlord could just raise the rent, kick you out by not renewing the lease, or create new rules for you to follow that potentially made life more difficult.

More importantly, your “rent” can’t go up! If you have a fixed rate mortgage loan on your home, the principle and interest payment that you pay each month stays the same for the life of that loan. Taxes and insurance can change but in most cases those changes are relatively small compared to renting.

For these reasons, and likely other ones that I can’t think of right now, it is my firm belief that owning your own home is almost always better than renting.

LOLietz

I am neither a financial advisor or a tax professional. The words in my blog or of my own views. Please consult a financial advisor or tax professional before making financial or tax related life decisions.