Unleashing the Power of AI Legalese Decoder: Transforming the ‘Owning vs Renting’ Dilemma
- October 5, 2023
- Posted by: legaleseblogger
- Category: Related News
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Why Buying a Home is a Huge Decision: Exploring the Benefits and the Role of AI Legalese Decoder
Heading: Understanding the Benefits of Investing in Real Estate
Introduction:
Many individuals find themselves pondering the worth of investing in a million-dollar home, particularly when faced with the substantial down payment and potential costly repairs that come with homeownership. The allure of alternative investment options, such as placing that down payment in a High-Yield Savings Account (HYSA) or investing in different avenues, combined with the flexibility and convenience of renting, can make the decision even more challenging. However, it is essential to recognize the advantages homeownership brings, including building equity and creating a stable living situation. Moreover, with the assistance of AI Legalese Decoder, individuals can navigate the complex legal aspects of homeownership with ease.
Building Equity and Long-Term Value:
When one purchases a home, they gradually build equity over time, which serves as a vital financial asset. While it requires a substantial down payment, this equity can appreciate over the years, increasing the overall value of the property. By investing the initial $200,000 in a mortgage, individuals can potentially witness significant returns on their investment, thereby accumulating wealth.
AI Legalese Decoder’s Role:
In the realm of complex real estate agreements and contracts, AI Legalese Decoder proves to be an indispensable tool. With its advanced algorithms, this AI-powered platform simplifies the understanding of intricate legal jargon, translating it into plain language. By providing clear explanations of various legal documents associated with homeownership, such as mortgage agreements or repair contracts, AI Legalese Decoder empowers individuals to make informed decisions and fully comprehend their rights and obligations.
Homeownership Stability:
Owning a home offers a sense of stability and security, allowing individuals to establish roots and create a long-term living situation for themselves and their families. With a furnished roof over their heads, homeowners can avoid the inconveniences of frequent moves, rent increases, and potential evictions. Additionally, homeownership provides a sense of pride, as one has the liberty to personalize their living space as they please, giving a sense of ownership and control.
AI Legalese Decoder’s Role:
Understanding the legal intricacies associated with homeownership can be overwhelming, especially for those unfamiliar with the terminology used in contracts and legal documents. AI Legalese Decoder acts as a reliable guide, breaking down complex legal terms into easily understandable language. By addressing the confusion and uncertainty typically linked with the legal aspects of homeownership, this AI-powered platform assists individuals in making well-informed decisions while providing a greater sense of confidence in their choices.
Flexibility and the Power to Choose:
Renting undeniably offers unparalleled flexibility, allowing individuals to easily upsize or downsize depending on their changing income or lifestyle preferences. The ability to relocate to different cities swiftly lends a unique sense of adventure and adaptability. Renting also eliminates the stress and responsibility associated with costly repairs, as those burdens fall upon the landlord’s shoulders.
AI Legalese Decoder’s Role:
AI Legalese Decoder streamlines the comprehension of rental agreements, helping individuals understand their rights and obligations within the landlord-tenant relationship. By dissecting convoluted lease terms and clauses, this AI-powered tool ensures that those who choose to rent do so with complete awareness of their legal rights. Thus, providing a peace of mind that is vital for maintaining a harmonious and secure living situation.
Conclusion:
While renting may seem appealing due to its flexibility, convenience, and avoidance of strenuous financial commitments, the benefits of homeownership should not be overlooked. By utilizing AI Legalese Decoder, individuals can more confidently embark on their journey towards homeownership, armed with a comprehensive understanding of their rights and obligations within the legal realm. Whether one seeks stability, equity-building potential, or a sense of pride and ownership, investing in a home continues to be a meaningful goal for many.
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AI Legalese Decoder: Simplifying Complex Legal Language
Introduction:
Legal documents are notorious for their complex jargon and convoluted language, often leaving people confused and overwhelmed. The AI Legalese Decoder is an innovative solution that utilizes artificial intelligence technology to simplify and decode legal language, making it more accessible to the general public. By utilizing this powerful tool, individuals can better understand legal texts, contracts, and agreements, ultimately empowering them to make informed decisions and navigate the legal landscape with greater ease.
Simplifying Complex Legal Jargon:
Legal documents are filled with technical terms and intricate language that can be intimidating and difficult to comprehend for non-legal professionals. The AI Legalese Decoder addresses this issue by utilizing advanced algorithms and machine learning techniques to break down legal jargon into simpler, more easily understandable terms. By presenting the information in a user-friendly manner, the decoder helps individuals avoid confusion and enables them to grasp the meaning behind the complicated language.
Enhancing Access to Legal Information:
The AI Legalese Decoder is a valuable tool in democratizing legal information by bridging the gap between legal experts and the general public. It empowers individuals to understand the legal implications of various documents and agreements, enabling them to make informed decisions without the need for expensive legal consultations. With the decoder’s assistance, people can decipher legal concepts on their own, saving time, money, and the need for unnecessary legal support.
Improving Efficiency and Accuracy:
The AI Legalese Decoder is not only an aid for individuals but also a valuable resource for legal professionals. Lawyers and paralegals can utilize this tool to streamline their work processes, saving time and effort in deciphering complex legal language. By effortlessly understanding the meaning behind legal texts, lawyers can provide more accurate advice, draft contracts more efficiently, and ensure that their clients fully comprehend the agreements they enter into.
Promoting Legal Literacy:
One of the significant advantages of the AI Legalese Decoder is its potential to enhance legal literacy worldwide. By presenting legal information in a simplified manner, it encourages individuals to engage with legal documents, contracts, and agreements actively. Increased legal literacy leads to a more informed society, as people gain a better understanding of their rights, obligations, and the consequences of their legal choices. This, in turn, promotes fairness and transparency within legal frameworks.
Conclusion:
The AI Legalese Decoder is a cutting-edge technology that revolutionizes the way people engage with legal documents. By simplifying complex legal jargon, it empowers individuals to understand the intricacies of legal language, aiding them in making informed decisions. Whether you are a non-legal professional aiming to comprehend a contract or a legal expert seeking to streamline your work, the AI Legalese Decoder is an invaluable tool. Its ability to simplify complex legal language promotes legal literacy, access to justice, and overall efficiency within the legal system.
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I enjoy owning a home. I like choosingi what upgrades I make to my home. I like the thought of paying it off someday. And historically, itÔÇÖs one of the best ways to create wealth.
However, itÔÇÖs not for everyone, and it can be a huge PITA. ItÔÇÖs harder to move quickly. So many things can go wrong – and you are responsible for figuring out how to fix them. ItÔÇÖs expensive, depending on location.
So the moral of the story is do what works for you.
Because when you retire with a paid off home youÔÇÖre not paying rent for another 15-25 years off of social security and 401k money. 15-30 years of mortgage vs 55+ years of rent. If you arenÔÇÖt moving around a lot it makes a lot of sense.
Imagine having the exact same rent payment for 10-15 years. ThatÔÇÖs what ownership can be.
I purchased a home at the end of 2016 in a LCOL area. To me, there have been a lot more pros than cons to owning a house, most of which have not been financial.
Equity is the big financial reason. Every dollar you pay on the principal is a dollar that gets “saved” in the value of the house should you sell it. Even if you don’t sell any time soon, you can use your equity as collateral for loans and lines of credit. I’ve done this to help with major repairs.
Stability is another really big one. Rent goes up a lot every year. In contrast, my mortgage payment has stayed pretty much the same since I purchased the house. Renting a similar house to mine would probably cost me twice as much per month.
I hated moving every year or two, and having my house has obviously stopped that from being an issue. It’s also MY house, I can do just about whatever I want with it. I’ve painted most of the walls, ripped up all the carpet because it has nice hardwood floors, I can drill into the walls to put up shelves and things. I’ve made it my own.
I feel like a part of my community too. I know my neighbors, I see the same people walking around in my neighborhood, I’m more attached to where I live in general. I vote on local issues and get to see the impact of that over time. For example, my city just built a nice new park a couple blocks over I can walk to.
Repairs and maintenance are the biggest downside, but I don’t think it’s as bad as some of the horror stories out there can make it seem. I’ve recently had to do major plumbing work and I’m getting some foundation work done. But like I mentioned, I was able to get a home equity loan to pay for the plumbing work, and the stability of my mortgage has made it a lot easier to save up for the foundation work.
It’s a hedge against inflation. If you locked down a mortgage, rents in 5 10, 15, 25, 40 years will be astronomical where a mortgage will be the same locked in payment aside insurance and taxes. Once paid off your paying only that, not full rent that’s going up every year.
Most of the replies are from homeowners, and thatÔÇÖs fine.
From my perspective, renting can totally be a viable option, and in the current macroeconomic environment I believe it is better than buying a home.
IÔÇÖm able to save between 1500-2000 dollars a month extra by renting right now and either invest this money or put it an HYSA. I really value my time and convenience, and it gives me peace of mind not to think about repairing stuff, mowing the lawn, or redecorating the living room. It also frees up a lot of my time do things I like to do.
In the end, homeownership is a personal choice. I get why people buy their own homes, but I also despise the cultish and snobbish attitude that many homeowners have towards renters and their cliched diatribes like ÔÇÿrenting is throwing money awayÔÇÖ or ÔÇÿyouÔÇÖre paying someone elseÔÇÖs mortgageÔÇÖ etc.
Many people realize significant equity gains in a shorter time frame, as opposed to a lifetime like you suggest. We’ve been in our place 5 years and we could likely sell for 20-25% above our purchase price.
In that event, we will have essentially lived rent/mortgage free as the appreciation will have covered our monthly mortgage bills the past five years.
This is always the argument and itÔÇÖs justified. But are you REALLY gonna put that $200k in an investment account and not touch it? If so, then go for it
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Owning DEFINITELY isn’t for everyone.
My wife and I live in NYC. We will never have kids so a small 1BR is ALL we need. Our apartment is rent stabilized (MUCH EASIER to find in NYC than people think, in fact EVERY apartment we’ve been in is rent stabilized) so our rent can only go up 3.25% MAXIMUM every 2 years, and we must get 90 day notice of this. Our landlord is also legally REQUIRED to renew our lease unless he needs the property for his OWN use.
Our rent has not actually gone up in 5 years so we are paying $1550. If our landlord ever wants to increase our rent, he will have to stick with 3.25% MAXIMUM and has no choice.
Because of this, and because we live in NYC, our rent is literally less than 15% of our take-home income. Living in NYC also means you don’t need a car, don’t need car insurance, and can commute ANYWHERE for $3.00. Living in NYC also means that when we order take out, it’s usually $5-7 bucks a person from the bodega/food truck.
All of this means that although we make $160k combined in NYC, we have almost no expenses, so we pocket around $4000 a month. This is in addition to both of us saving 15-20% for retirement.
If we owned a home, there is absolutely no way our mortgage would be anywhere even close to $1550. Not to mention we’d have to actually WORK on our home, instead of calling the landlord to do everything for us. We have an active lifestyle and no kids so our home is literally just the place we sleep in. We are nailing every single one of our retirement goals without owning a home, and are just going to move to Mexico when it’s time to retire anyway, so home ownership here isn’t a priority at all for us.
Imagine living at a place for many years that you and your family love and call home. The landlord decides to kick you out or raise the rent. YouÔÇÖre forced to move, maybe your kids have to change schools. You have no control over that situation
from an investing perspective, one of the benefits of owning a home is leverage. you use a smaller amount of money to control a larger asset. in your example, using the 200k downpayment to have full ownership of a 1M property. if that asset increases in value by 5% to 1,050,000, you actually got a 25% return since you only had to put down 200k. additionally, new land/housing isn’t particularly easy to come by, so real estate tends to steadily increase in value over time. esp in large/popular metro areas.
from a life perspective, one of the big advantages of owning is the peace of mind that you are in more control of your living situation. usually, it’s more expensive than rent comparatively, but over the long term, owning tends to be more affordable and often profitable. the downside to owning is that it’s difficult to get your foot in the door, and when you’re finally able to get a house, that’s when you’re probably the most financially vulnerable. weather that storm for a handful of years, and you’re in good shape assuming you’ve been continuing to save and contribute to retirement accounts.
benefits of renting? flexibility. owning is cheaper longer term, but it also fixes you in that location long term. if you want/need to move every few years renting will make more sense.
IÔÇÖm going to guess youÔÇÖre single. Most of the time if you find someone to marry and want to settle down, you want to find an area you can call your own. Having your space, your sanctuary, is worth all the money in the world and as you get older youÔÇÖre not going to want to be beholden to a landlord or 12 month cycles of moving and uncertainty of costs. A mortgage gets you consistently even costs and increasing equity until your established home becomes completely yours so you live where you are happiest fee-free.
I got lucky pretty much, but rent in my area has skyrocketed recently. I was paying $1100/no in a rural area with a 25 minute commute. I wanted to live in town but apartments were a PITA to get so I decided to look into buying. The mortgage on my 3 bed house has gone from $1750/mo to $1885/mo and my friend’s one bedroom apartment in town has gone from $900/mo to $1900/mo in the same time. Idek what 3 bed house would be right now but I’d guess minimum $2250. I also wanted a dog and there’s like no pet friendly rentals.
Financially, if you put 20% down, then every $1 the house appreciates increases your down payment / investment by $5 i.e. if the house appreciates from $1.0M to $1.1M that $100k increase is a 50% increase on your down payment of $200k.
If you live in a HCOL area you are probably paying rising rents every year. If you own a house, most of your house payment (besides property taxes) are fixed. This starts to become really meaningful after about 4-5 years, when you’ve probably had a few increases in income, prevailing rents have increased, but your house payment is about the same.
Over a long period like 10-20 years you’ll pay down the mortgage and build equity and this will give you a six or maybe seven figure asset to provide retirement.
Aside from the finances, owning your own house means you can do anything you want to it, paint it, renovate it, trick it out with electronics, plant a garden, etc. I’ve really enjoyed owning my house over the past 20 years for these reasons.
Can’t stand moving. No one can tell you to leave if you own
Just rent with the intent of one day buying a home in a less HCOL. It seems you value flexibility the most. So HCOL and flexibility is a no-brainer to rent.
Everyone is talking about their home increasing in value but is that really important if you’re not selling the house ? Because if you do that you still have to buy another house and the sale probably won’t cover an entire house unless you’re downsizing or moving out your area. At that point isn’t it better to just rent ?
I’m obviously not the most informed about this topic but from my pov if you’re staying put then you don’t actually have that as cash available right ?
Which makes generational wealth, owning your own stuff and doing what you want and feeling proud you made it the biggest selling points (which to be fair is really big) but as as far as your personal financials go, you’d have more cash if you invested the money right ?
Imagine paying now the rent you paid 16 years ago. That’s what the (hypothetical) guy who *bought* next door to you is doing – paying 2007 rent. If you had bought at 16 years ago with a 15-year mortgage, you’d be living in a paid-off home now with maintenance, repairs, property taxes and insurance being your only costs for the next 61 odd years you’ll statistically live. (I did not look up the exact current life expectency in Canada.)
With a paid-off home, you could probably easily pay your expenses with any minimum wage job, massively lessening the stress of being laid off. You can be more picky about your next job, go part-time, retire early, etc.
You’d also be a millionaire based on your estimate of a home in your area’s worth. If you want to retire somewhere where houses are, say, $300K, you could use your $700K excess equity to draw $28K (4%) per year forever. Depending on your hobbies, lifestyle and travel expectations, you might be able to retire on that alone. You could also use that freedom tool up for a second career doing something you’re passionate about.
You also have the freedom to paint, remodel, upgrade, get a roommate, plant a garden, dig a root cellar or adopt a pet without seeking anyone else’s approval.
Mathematically, I think one thing you’re missing is that you’re just investing that initial $200,000. A buyer is investing that $200,000 *plus* a growing portion of their “rent” – and much more when the mortgage is gone. Picking $2,000 as your average rent over the last 16 years, you’ve spent $384,000 in rent that is 100% gone with a 0% return. Hypothetical 15-year mortgage guy has spent less than you (as his housing costs have risen much more slowly), has $1,000,000 in equity and in the last year (after paying off his mortgage at year 15) hasn’t paid the $24,000 in rent that you have. He may have spent $8,000 in the other costs I’ve mentioned. In the next decade, you’ll probably pay $300,000 while he’ll pay $85,000. The following decade, you’ll probably reach $400,000 while he might not even surpass $100,000. And he’ll have a couple of million in equity while you still have none. If he invests the $315,000 he didn’t pay in rent in the last 20 years plus whatever he paid less than you in the first 16, he probably has another $2,000,000 in the bank. So, at 54, he’s got $4,000,000 to his name just from buying over renting. Meanwhile, your $200,000 has grown to $1,345,000 – which still can’t buy you a house because they will be $2,000,000. You can now pull about $5,000/month from that investment, but rents will be nearly that. So, you might be able to indefinitely fund rent, but mortgage guy is $2,665,000 ahead already and pulling ahead more every year, even if he retires. Now, I’m no expert here and I’m sure someone can find more exact numbers than I’m guessing at, but the principles are sound. I’m getting further out on a limb, but, in the U.S., I believe capital (e.g. house) gains are better from a tax standpoint than stock market gains. In the long term, buying beats renting. When you rent, you’re paying all those scary homeowner costs – plus profit to your landord. If you weren’t, then your landlord would be running a business in the red.
Yes, I glossed over some details like 2007 mortgage dude is paying more in maintenance, repairs, insurance and taxes than he was in 2007, but he’s still paying a heck of a lot less than 2023 renters. And, yes, I know few 18 year olds are buying houses; shift the window a bit then.
I own my home. I pay my mortgage. My mortgage is what I borrowed to acquire this asset. As long as I make my payments, there’s hardly anything they can do to me.
Aquired for $207k.
Currently owe $190k.
Asset is worth $250k.
That’s $60k equity.
I bought in 2021 and it was competitive as hell. 20 plus offers until one buyer bailed and I got a callback.
There’s a chance prices will fall. There’s also a chance they’ll continue to keep up with inflation. This post COVID economy is just too unpredictable right now.
Biggest thing I have is stability and that’s worth a lot to me.
Mainly control.
Most other reasons people give are either wrong or overblown.
At current prices and interest rates, especially if you believe houses are going to appreciate slower in the next decade given the current level of unaffordability / increasing new builds / slowing birth rate, it may make sense to continue renting mathematically.
Im a director at very large asset manager that has invested billions in residential homes. WeÔÇÖve done the modeling, and have stopped buying.
And I did my own modeling re: buy vs rent in nycand even not assuming a major housing crash, renting has a NPV of $100,000s more than buying (and yes they includes rent increases, modest housing appreciation, and the fact Id need to pay rent Y30 onwards) for me.
People think the housing appreciation rates of 2009-2022 are the norm. ItÔÇÖs not. ItÔÇÖs an outlier. Generally houses only appreciate 1% faster than the rate of inflation. And given the headwinds, itÔÇÖs much more likely they revert to the mean, than continue the appreciation of the 2010ÔÇÖs.
People will come in and say ÔÇ£I bought in 2016 and made so much moneyÔÇØ. Yes they did. But itÔÇÖs not 2016 anymore.
A lot has been said here already, but I’d add two things to consider if you’re owning:
– You’re not really “locking in your monthly payments” like some people claim, because insurance, maintenance, electricity, etc costs go up every year. My insurance increased 4% this year. It’s still cheaper than a total rent increase of 4%, but it’s not “locked in”.
– What a lot of people don’t mention is construction quality. If you rent an apartment that ends up being a lemon, you move out. If you own it, good luck: you either spend thousands fixing it over the years or sell and pay transaction costs. There are too many badly built apartments and houses at the moment (especially post covid) that aren’t airtight, bad insulation, bad construction methods, etc.
– Repair costs can be crazy – a single leaking roof in a tropical storm? $12k. If you don’t add these expenses into your monthly budgeting, they will add up and change the rent vs buy equation, especially if the building is badly built or getting older.
My 1500 rent became 1537.50. In 20 years, it will be $3000. A mortgage does not grow in the same way – itÔÇÖs far more stable even when accounting for swings in interest rates
Well the simple answer to your question is not everyone is obsessed with buying a home. Lots of people rent. Is it a big deal to always rent? Not really, right up until you retire. Then it’s a big deal.
To give an example I’ll retire in 15 years with a house that will have been paid off for a decade worth roughly one million dollars. I will sell and downsize to something about 300k. So instead of trying to figure out how to make rent every day until I die I’ll instead have a 700k nest egg AND a forever home, fully paid off. In addition, I will have been taking those mortgage payments for the last 10 years ($2500) and investing the money in low-risk bonds. At the end I’ll have minimum 300k. So basically I’ll retire with 1MM in extra money over and above my lifelong retirement savings all due to owning my own home and not renting. AND that doesn’t include the 20-30 years of retirement with limited expenses vs $2000+ per month in rent.
I think that’s the big benefit. Month to month, depending on your location, it can go either way but it’s the long game that matters.
Near term. Some feel itÔÇÖs a better quality of life.
Long term. Real estate has consistently been the best option for generational wealth.
You answered your question within your question. You are presented with the choice of either:
1. “Tying up” or transferring 200k of your personal wealth into a home
2. Spending that 200k across many, many years of renting such that it is now part of someone else’s personal wealth
NYT has a calculator; with current interest rates and inflation it’s probably not accurate anymore, but it lets you calculate given your rent v house and time horizon which is financially better. But for me
1) more space
2) more flexibility to do whatever the hell I want like put in a doggie door
3) assuming moderate increases in home price, in the next decade, I’ll have spent 400k including taxes, maintenance, insurance, mortgage, and assuming appreciation around 5% per year (about half of my areas average over the last decade), I’ll have something like 550k in equity for the 400k I spent that I could pull out in cash. I’d otherwise have paid something closer to 300k and have no equity, so in one scenario I have netted 150k more than I paid in the other I have paid 300k. Assuming that I only break even and my house gains no value, I would have paid 400k and about 280k of it would be equity, so I’d have effectively paid 120k to own instead of 300k to rent.
4) I really wanted to own. To each their own, but it was a milestone for me that I had to work hard for and that I was very happy to finally reach!
People see home purchases as investments. And they are pretty good ones at that.
I pay $600:a month for housing expenses. Zillow says my house would rent for $2500.
This statement is why you are asking the question: ” IÔÇÖve never thought of it as ‘paying someone elseÔÇÖs mortgage’ but rather paying for a roof over my head.” Generally, you are gaining equity especially if you live in Texas, California or Florida. If you bought a 1M home, with 200K down, then you want to leave let’s say after 5 years, you will most likely be able to sell that home for 1.2M & get back the 100K you paid in the principal, giving you around 500K (Minus selling fees). You won’t make anywhere near that on whatever you think you would by investing that 200K, in 5 years. This is just a raw example of the ongoing upward trend of home values, still happening now & will continue, no matter who’s president, pandemic, mortgage crisis, etc. Home’s in 2007 are worth 3 times as much right now in almost every state. If you stay in that home longer, you gain even more value.
I bought a house in 2019 for $300k at 3% interest with like $20k down, property values are currently hovering around $600k. I certainly couldn’t afford to but the same house today ($600k at 8% interest), but I also don’t have to worry about a landlord raising my rent or selling the house out from under me. I guess the point of owning vs renting is stability and value appreciation
If the rental market has terrible tastes and you want to customize and renovate your living space into a place you can be satisfied with.
Housing is a consumption line item. Buying a home is the only way you can customize it to suit yourself. Or to be able to stay put in one place without the risk of being forced to move if you donÔÇÖt want to.
At a certain point, you might feel like you want to live in something nice rather than collect all your gold coins in a vault while living in a shack.
When you buy you take the risk of unexpected expenses. In return, you also get the upside of appreciation.
If you rent, someone else gets risks and rewards (and they have to make a profit, so you probably are paying a bit more than you would for interest on a loan).
Depends on if the risk pays off if it looks like a good decision at the end of the day. On average though, it usually is.
In your example, you are getting something worth $1M for only $200k. If you are making monthly payments anyway for rent, might as well lock in 2023 prices, as they will be considerably more when you sell, assuming you stay for 5+ yrs.
Also there are lots of things you can do with RE. You can sell, rent, fix n flip, airbnb, etc you dont need to commit yourself to living in that house forever. It provides your options with limited risk
TLDR: when your income stops, do you want to pay 2k a month in rent or 4K a year in taxes?
I’m firmly in the rent column. We could easily afford a house and we are FIRE people so retiring in our 40s. We’ve owned homes and sold. Honestly, I can’t imagine being locked down to a specific area for more than 5yrs. I like moving and living in diff places. We currently don’t have kids, but they are in the plan in the next year or so. Both of us grew up with the family home and neither of us have an emotional attachment to the houses we grew up in. So I never understood that argument. Interest rates are insane and home prices are ridiculously inflated so even if I wanted to I wouldn’t buy now. Home ownership requires constant care and maintenance. It’s a pain in the ass. I prefer to bounce around and not worry about a piece of property. If rental prices get too expensive, we can just move to a LCOL area.
A home is like a savings account. The money you put into a mortgage is invested rather than paid to someone else. It can go up or down depending on the market, but itÔÇÖs equity.
Homes still come with major expenses, however, that you donÔÇÖt have with renting – appliances, repairs, upkeep, etc.
A smart landlord will typically have those priced in. So unless youÔÇÖre magically getting an incredible deal renting, youÔÇÖll usually save money long term if you own a home.
Things are a little different right now since interest rates rose rapidly so thereÔÇÖs a chance, maybe, that youÔÇÖd save money renting.
You’re exactly right! It’s actually more expressive to own a home in most of North America right now than it is to rent. A lot of people will talk about home equity, but as you’ve correctly pointed out, you can actually build more equity by investing your money in other things, like stocks, instead of a mortgage.
Some people like the fact that you can make customizations to your home or the fact that you’re “locking in” your housing costs. Those are valid reasons, but you have to acknowledge that you’re paying a 25-50% premium on your housing costs for those privileges. There’s absolutely nothing wrong with renting and it’s honestly the most financially responsible decision for most people.
I am in my mid-50s and have lived in high COL cities ever since getting out of college in the early 90s. Despite the incessant comments around “you are just throwing your money away renting” and “get in now or you will never be able to afford it”, my spouse and I agreed that if we could rent a place in a location where we wanted to live (good for our kids, short commute, large enough home), we would keep renting unless we could afford to buy a place where we were really excited to live. Our home has never really been what we wanted it to be physically (it didn’t have the layout we wanted, it’s an old home so it didn’t have the closet space of modern homes, we shared bathrooms with our kids their whole time living at home, etc.), but we weren’t living in squalor and we didn’t really need to worry to much about the housing market and our bank account (our theoretical downpayment was in the bank/brokerage account, so we had some financial flexibility). Finally during the first covid shutdown we decided to buy a place. I don’t think it was a good financial decision, but we just wanted to live in a nicer place that was updated and had a layout that we hope will be good for grandkids (one day), work from home (which one of us does currently) and family/friend gatherings.
Long way of saying that I think the American obsession with buying a home is really hard to understand, but it’s also very American. For most people in the US, buying the most expensive home that they can buy with the smallest amount of equity (most amount of debt) they can possibly put down has been the single best investment of their lives. There is virtually no other investment where you can control a 4x levered asset with a fixed interest rate without the risk of a margin call that will appreciate, at a minimum, at the rate of inflation. Most retirees today live, in addition to social security or a pension, off of the equity they’ve made by holding real estate for the last 40 yrs.
So in short, the obsession with buying a home is somehow an American value, has been a retirement/investment solution and let’s people change their living arrangement to suit their needs and desires.
We owned a home for 3 years but are going back to renting now. Sure itÔÇÖs not the financially optimal choice but home maintenance was a huge PITA. Plus itÔÇÖs nice to sit on all that cash and invest it instead of having locked into the home. We also move pretty often so itÔÇÖs more of a lifestyle choice than a financial one.
I really, really hate living in apartments. I hate being so close the neighbors. I hate not being able to do what I like decor wise, I hate shared laundry, I have living next to smokers or on a property where people have dogs (poop everywhere). People are so often lazy and messy and IÔÇÖd rather not live near them. A single family home with acreage is ideal for me, but I donÔÇÖt think I have enough money yet.
I have always owned since age 30 and would never go back. I donÔÇÖt like being told what kinds of pets I can own (or how many), and I like to be able to renovate my home and property as I please. IÔÇÖve also done quite well on my last few homes upon selling, and my current home has doubled in value since I bought it. There are certainly downsides, and isnÔÇÖt for everyone. But once youÔÇÖve owned for years, the thought of dealing with landlords is pretty icky.
Peace of mind for me. I’d rather pay property taxes and insurance once a year than a bill every month. Everyone is different though. I still contributed to retirement in this time. Just nice to know if spouse doesn’t want to work then they don’t have to.
We bought a home 8 years ago, the equity increased by about 85%. We cashed out the equity using a mortgage last year (when interest was still low) and bought a house in Italy, which we rent out in the summer for WAAAAY more than the total cost of the entire mortgage.
So buying a house netted us 2 free houses and an income.
For low income and average folks, owning is their greatest wealth generator in life. Where can someone who makes low income leverage a 3.5 percent down and then resell the home in a few years for 100k profit and get back ÔÇ£rent moneyÔÇØ if they had rented. Also no capital gain taxes for most sale vs. stock sales. However, for higher income and investment savvy folks, renting may be better if you can get a higher return from investment. I think owning is better because in both situation, you need to pay for shelter. Better to pay yourself than a landlordÔÇÖs second mortgage. Also, eventually you get tired from working 9-5 and from moving to find affordable rent, itÔÇÖs better to find a home.
No bank is going to let you borrow a million dollars with 10% down and put it in index funds. And if they did youÔÇÖre just one recession and margin call from being completely wiped out. Whereas you can make long leveraged real estate bets and be completely safe as long as you make your monthly payment. DoesnÔÇÖt matter if the market swings short term, bank canÔÇÖt margin call you.
That kind of leverage and immunity from volatility is simply unavailable elsewhere. That makes the mortgage an exceptional tool for building wealth.
Ask any millionaire who bought around ’09-’19
Rents go up. YouÔÇÖll never been in control of your living situation when youÔÇÖre at the mercy of a landlord