In this video, I talk about whether or not you should buy or rent a house.
One of the biggest dangers of renting versus owning is that over time rents will increase dramatically. If rents increased at just 5% per year, then after 15 years your rent would double.
That means that if your current rent is $2,000, then it would be $4,000 in 15 years. Even more scary is that 15 years after that it would double again (to $8,000).
So if you insist on renting instead of buying, then you may put yourself into a bad financial situation down the road as rent increases and your housing expense becomes a larger and larger part of your expenses.
If you repeat this negative pattern, then after 30 years you can see how this could become a disaster if you stopped working, or got laid off, or retired, and were not able to pay the rent.
Owning a home gives you a guaranteed place to live. No one can ask you to leave or force you to leave and no one can raise the rent. Your mortgage payment is fixed and stays the same. In Florida (and a few other States) you can get an unlimited homestead on your primary residence which is an additional benefit. You also get tax deductions from owning a home.
So buying a home is prudent (most of the time). If you are currently renting a home in an affordable entry level neighborhood then buying that home (even at current rates) would still make more sense than renting it. However, as rates have increased and prices have increased this is becoming less and less the case.
Does it ever make sense to rent instead of owning? If you have a career that requires you to move about a lot then that may make sense – but I would still recommend owning a home and renting that home out. If you own a nice home and are out of town frequently, then consider turning your home into an Airbnb to earn extra income.
If you live in a luxury building then you may find that you are better off renting than owning (in the short term). But you will need to own rental properties to ensure that your equity and income both increase over time (in order to offset your lack of equity and rent increases).
For example, if you paid $5,000 a month to rent a nice place in a great building in Florida with views of the water, that same place may cost $1.5 million to buy (plus HOA Fees, taxes, insurance, repairs, maintenance etc.).
It may be cheaper for you to rent if you wanted to live in that building. But you will need to have multiple single family rentals that are increasing in value and are having annual rent increases in order to be able to offset the rent increases on where you are living.
For example, if you lived in that luxury building and owned 10 single family rental homes that cost $200,000 each and that each rented for $2,000 a month, then at the end of the year you could increase rents by 5% which would be $100 x 10 or an additional $1,000 per month. If your luxury rental increased the rent by that same 5% from $5,000 to $5,250 then you would have more money coming in from the increase in your income from your rental properties than the amount of your rent increase to offset that inflation tax.
But if you want to be frugal, a better strategy could be to “bite the bullet” and live below your means in a house that you purchased. The goal would be to find a neighborhood where you would be okay living. This neighborhood would probably have everything that you need and would be a desirable place to live and would be close to great schools.
So when we talk about “buy versus rent” the cost of rent and rent increases is a very important factor.
But what about appreciation? Let’s address that too.
If the price of real estate increased by just 5% per year then the price of the house would double in 15 years. So if you purchased that $200,000 house and you had a 15 year fixed rate mortgage, then at the end of the 15 years the house value would double to $400,000 and you would no longer have a mortgage since the mortgage is paid off.
At that point, you would have
1. A $400,000 house that you own free and clear with no mortgage
2. $4,000 a month in income forever (increasing at 5% every year)
If you had 10 rental properties like this then after 15 years you would have $4 million in free and clear equity in your houses and you would have $40,000 a month in income forever (increasing at 5% every year)
And that my friend is how you become wealthy.
Don’t wait to buy real estate. Instead, buy real estate and wait.
And the best type of real estate to buy is single family rental homes.
Buying rental properties is one of the surest and easiest paths to create wealth. So if you want a sure plan that will get you to financial freedom then start by buying rental properties. I recommend that you focus on single family entry level homes in good neighborhoods. And I recommend that you get a 15 year fixed rate mortgage so that you can achieve your financial freedom plan quicker.
Learn how you can find, fix up, and rent out a house at my upcoming Fixing & Flipping Houses Boot Camp. Once you know how to invest in real estate you can create the financial freedom you have been looking for. Take your first step in getting out of the rental rat race and click the button below to learn more or call our office to reserve your seat today 561-948-2127!
