Is renting cheaper than owning?
That’s the age old question. Because of today’s growing rental market, I thought it was appropriate to discuss this topic. This week, I had the opportunity to be a mentor for young ladies in the Girls Going Places program. It’s a GREAT organization that teaches young girls, ages 12-18, how to be financially independent and explore entrepreneurism and leadership in the business world. During this big one-day event, the girls have to create a business plan, start a business (or choose a career) and budget their lifestyle. The first choice on their net monthly budget worksheet was this:
Rent in a big city $1,200 ____
Rent in a small city $650 ____
Own a home $1,700 ____
All but one girl at my table chose to rent. I found that very interesting! I asked them why and their simple answer, “Well, because it’s cheaper!” That was the golden opportunity for me to teach them WHY that’s false. Now, depending on people’s certain situations, it may be more cost-effective to rent in the short term. However, owning is always more cost-effective long-term. If two girls graduate college at the same time and one rents and one owns, 5 years later the one that owns will be in a much different financial situation. That girl will have equity in her name, while the other will have thrown money down the drain. It is true that you have more monthly costs when you own: Mortgage, homeowners insurance, taxes, maintenance & possibly HOA fees… as opposed to renting: Rent, utilities & possibly renters insurance (not required). However, the long term benefit and security of owning outweighs renting. If you stay in your home for 5 years, you’ll experience a roughly 12% savings overall. That will only go up the longer you stay in that home!
Not to mention, the market is changing rapidly regarding this issue. We are seeing rental prices at record highs and home prices at record lows. Due to the economic downturn, many are forced to rent and investors are capitalizing on that. As this next generation emerges into our upcoming consumer group, it’s important to educate them on the importance of saving for a downpayment on a home. Homeownership is the key to long-term wealth. Renting will never accomplish that for anyone. The average renter moves every two years. Each move produces a loss in one month’s rent, due to the upfront costs of a new rental, and possibly another half month’s rent if you don’t get your security deposit back. Let’s also not forget the moving expenses of boxes, truck rental, moving crew as well as your time and energy. I’m exhausted just thinking about it! The typical renter can afford to save & be pre-approved for a mortgage within 2 years. If that’s you, I encourage you to stay focused, keep saving and call me when you’re ready! I’d love to help facilitate that feeling of security & sense of ownership for you!
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Posted on May 10, 2012, in Real Estate and tagged Buy a Home, Economic Downturn, Equity, Girls Going Places, HOA Fees, Homeowners Insurance, Homeownership, http://www.kristenpell.com/idx/index.php, Kristen Pell, Mortgage, Pre Approval, Property Taxes, Real Estate Biz, Real Estate Financing, Rent, Renters Insurance, SWFL Real Estate, Utilities. Bookmark the permalink. Leave a comment.