April 14, 2015

23 Scientific Reasons Why Owning is Better than Renting

Read more about When to Buy a House

Need a reason to justify your reason for wanting to own a house instead of renting? We have 23 reasons for you, backed by proven facts.

Homeownership has always been considered the gateway to the middle class and a benchmark of the American Dream. However, many families have chosen to find domestic bliss without paying a mortgage in recent years. What they’re missing are the big benefits of homeownership that just can’t be replaced by renting.

Research shows that owning your own home has distinct advantages over renting, especially when it comes to building your net worth and providing a stable environment for your family. If you’re sitting on the wrong side of the white picket fence debating whether to rent or buy your next home, read our list of 23 reasons why owning your own home is better than renting.

1. It’s cheaper than renting.

Although buying a house is more expensive at the outset, it can actually be cheaper than renting in the long term if you play your cards right. According to real estate website Trulia, homeownership is 38% cheaper on average than renting nationally, which is a 3% decrease from 2013. Their calculations are based on a traditional 20% down, 30-year fixed-rate mortgage. They compared the total costs of homeownership (including maintenance, taxes, and insurance) to the total costs of renting for the same period of time.

They attribute the drastic difference in costs to the rising costs of rent and the low fixed-rate mortgage rate, which currently sits at 4.3%. That’s not to say that buying a home isn’t expensive – you’d still have to come up with the 20% down payment or pay mortgage insurance that would eat into your overall savings. The fact is by paying more up front on your own home, you can actually save money in the long run.

2. It forces you to save.

Speaking of that 20% down payment, have you considered how you’re going to pay it? Anyone who has had to save money for a large purchase knows that it takes discipline to budget properly so that you can reach your goals faster. Many experts argue that homeowners are more financially responsible because they’ve made the effort to save money for the down payment on their home.

A survey conducted by Canadian mortgage insurer Genworth shows that homeowners are in better financial shape because they exhibit better money habits. For example, 65% pay their credit card balances each month, 25% try to pay more than they’re required to on their mortgage, and 44% pay all their bills and are able to save money, too. If you ever need an excuse to save, saving for your dream home should be enough motivation to get your act together.

3. You can build equity.

One of the most significant benefits of homeownerships is building equity, which is your share of the value of your home. In more technical terms, it’s the difference between the market value of your home and the amount that you still owe. If you pay 20% down on a home that costs $200,000, you would owe $160,000 and your equity would total $40,000 (the interest you’ll pay doesn’t factor in to this equation). Pretty straightforward, right? However, if your home appreciates in value, your equity increases even though the amount you owe does not.

Let’s say that in a few years, the market value of your home increases to $275,000, and you’ve paid off a total of $70,000. You still only owe $130,000, but your equity would be valued at $145,000. A study conducted by Merrill Lynch found that while homeowners under the age of 35 have equity valued at $53,700 on average, homeowners over the age of 65 have around $212,800 in home equity. If you buy a home now, imagine how much equity you could have by retirement! Instead of your money disappearing into your landlord’s pocket each month, you’ll be paying into something that can become more valuable over time.

4. It increases your net worth.

Homeownership is more than just the American Dream, it’s also been an effective way to build one’s net worth. Sure, business acumen and investing know-how are other ways to build wealth, but for the average Joe, homeownership has been the most tried and true method of building net worth. You can calculate your net worth by subtracting your financial liabilities from your assets, which include investments, savings, retirement funds, home equity, and other valuables. Finance professor Sebastien Betermier estimates that housing accounts for 67% of the average American’s total wealth (an unwise money move in his opinion, but a norm nonetheless). Unless you’re consistently saving and investing your money through other means, a house can serve as a way to store your wealth and build your net worth.

5. Your house can appreciate in value over time.

Let’s be frank — property doesn’t always appreciate in value over time (which many learned the hard way in 2008), but guess what? Many experts believe that the worst is behind us. If you do your research and purchase a home with both eyes wide open, your home’s value may increase each year that you own it. Zillow economist Stan Humphries estimates that the average house appreciates in value around 3.5% each year, but some areas experience steeper increases. For example, Neighborhood Scout, which provides neighborhood information to buyers and renters, estimates that homes in Sherman, Texas, have increased in value 13.15% in the last year.

When deciding on your future home, it would be best to avoid areas with a high traffic volume, foreclosures, and crime because your home could lose value. However, qualities like good schools, “up-and-coming” neighborhoods, local employment, and even its proximity to a Starbucks are signs that your new house could end up being worth more than its buying price.

6. It’s more stable.

Buying a home is a big step in settling down and putting down roots in a community. Researchers find that not only do homeowners gain a sense of stability when they settle into their first home, but they also contribute to neighborhood stability. A study compiled by researchers with the National Association of Realtors shows that homeowners move less frequently than renters and stay in their homes for longer periods of time. Between 2010 and 2011, only 4.7% of homeowners relocated, but 26% of renters ended up moving, with many citing housing-related reasons.

Researchers William M. Rohe and Leslie S. Stewart theorize that homeowners are more invested in their properties, and thus, their neighborhood, which makes for a more stable and close-knit community. In areas with a high turnover rate, it’s hard to know your neighbors, much less trust them to pick up your mail or feed your cat when you’re on vacation. For those looking for stability and a neighborly ambience, homeownership might offer them what they’re looking for.

7. You’ll have stronger social ties to you community.

Have you ever wished you lived in one of those idyllic neighborhoods where you can borrow sugar from a neighbor and share a homemade pie with another neighbor? If you’re constantly moving from rental to rental, you probably don’t get to know your neighbors very well, aside from the usual small talk you make in passing. Because most homeowners stay in their homes for longer periods of time, they’re more likely to form relationships with their neighbors and are more invested in their community.

A study published in the Journal of Urban Affairs found that homeownership gives residents a platform to connect with neighbors and increases their social capital. The reasons are simple – as a homeowner, you have a greater stake in your community and have the time and incentive to get to know your neighbors on a more intimate level.

8. You’ll feel more secure.

You won’t find homeowners desperately looking for housing after receiving an eviction notice. Unless the bank forecloses on your house, your home is yours until you decide to sell it. Each state has its own laws on tenant evictions, but in many cases a landlord can evict a tenant even when the tenant didn’t do anything wrong. For example, in California, landlords can evict tenants if their family wants to move into the property or if they want to sell, destroy, or repair it. A report by the Neighborhood Law Clinic at the University of Wisconsin shows that evictions increased 10% in Milwaukee County from 2010 to 2013. In San Francisco, evictions increased 38% in the same time period. Being a homeowner means that you’ll never have to move because of factors outside of your control.

9. It’s private.

Do you really want your neighbors to hear your child’s morning meltdowns? Do your neighbor’s TV sitcoms frequently keep you up at night? According to the National Multifamily Housing Council, single-family units make up only 35% of rentals in the U.S., and 60% of rental properties are 2 or more units, which includes duplexes, apartments, or condos. As any renter can attest to, sharing walls with other tenants can be awkward at best and annoying at worst. Aside from noisy neighbors, renters also have to deal with meddling landlords who have access to their private space. In a survey conducted by mortgage loan company Freddie Mac, 86% of renters agreed that owning a home would give them more privacy than they currently have. The privacy that homeownership can offer is priceless.

10. A part of your mortgage payment is tax deductible.

Owning your own home comes with more responsibilities and expenses, but the good news is that some expenses are tax deductible. Property taxes, private mortgage insurance premiums, energy-efficient additions to your home, and the interest that you pay each month on your mortgage can all be deducted from your taxes. Although you’re on your own when it comes to maintenance and repairs, at least you can deduct a portion of your monthly housing expenses on your taxes – a benefit that renters don’t have.

11. You can create your dream house.

As a renter, you’re basically living in somebody else’s home and are subject to their petty rules and decorating whims. Want to install a shelf in your bedroom for your book collection? Better ask permission. Want to change the color of the living room? Forget it. Want to knock down a wall to make more space for your entertainment center? Also not going to happen.

When you purchase your own home, you have more control over the redecorating and remodeling. In the survey conducted by Freddie Mac, 89% of renters said that being able to redecorate their living space would be a perk of owning their own home. If you fantasize about customizing your dream house, purchasing your own home is the only way to make that dream happen.

12. Your monthly mortgage payments won’t increase without your say-so.

If you’re a homeowner in an up-and-coming neighborhood, then congratulations – your home will probably appreciate in value in the coming years. If you’re a renter in an up-and-coming neighborhood, then you better brace yourself for the rent hikes that come with increased demand for housing. Trulia’s rent monitor shows that rents increased by 6.5% nationally last year, but larger metro areas experienced even sharper increases. In San Francisco, for example, rent prices rose 15.5% from 2013 to 2014.

When you purchase your own home, your monthly mortgage won’t deviate too far from your first mortgage payment, although the percentage that goes towards interest and the principal will change over time. With a fixed-rate mortgage, the interest rate is fixed from the time you sign the loan. If you opt for an adjustable rate mortgage, the interest rate may start out lower than a fixed-rate mortgage, but it will change depending on a specific index (which is determined by the lender). Other factors that may increase your monthly mortgage payment are local property taxes (which you have little control over) and home insurance premiums. However, as a homeowner, you definitely won’t find yourself in the same predicament as this woman, whose landlord increased her rent by 400%.

13. You can take out a second mortgage for an emergency.

Your house is an investment and is most valuable when you’re paying off your mortgage and building equity. However, if you ever find yourself in dire straits, taking out a second mortgage on your home is an option that you would never have as a renter. When you take out a second mortgage on your home, you borrow from the equity you’ve already accumulated on your house, either with a home equity loan or a home equity line of credit. The second mortgage is basically a second loan in addition to your original mortgage.

Because you’re using your home as collateral for the loan, the decision to take out a second mortgage should be one that you weigh carefully. If you default on the loan, the bank can repossess your house, making all your hard work for naught. According to the 2013 American Community Survey, more than 7 million Americans have taken out a second mortgage or a home equity loan. Common reasons that people take out a second mortgage are for major home repairs, the purchase of a second home, medical bills, or financing a child’s college education. Although taking out a second mortgage should be a last resort, homeowners have an advantage over renters because they can use their home equity if an emergency arises.

14. You can rent out your home.

Contrary to what you might think, owning one’s first home isn’t the end of the road for many homeowners. Although homeownership is a long-term commitment, many homeowners go on to rent their homes when they purchase a second one, or even rent out extra space to other tenants. Zillow ran calculations to see where homeowners can earn more by renting out their home to tenants in comparison to selling. They found that homeowners who live in cities like San Jose could earn as much as $8,927 annually from renting out their home in the long-term. According to the 2001 American Housing Survey, 21.3% of people who owned second homes rented them out to tenants. Unlike renters, homeowners can make a profit by renting out their additional space.

15. Your kids will perform better in school.

Researchers have found a positive correlation between homeownership and children’s academic achievement. Because most homeowners stay in their homes for a longer period of time, they provide a more stable home life for children, which, in turn, affects their academic performance. Researchers Lisa Mohanty and Lakshmi K. Raut found that children who change schools too often perform worse in school, which is probably due to adjusting to a new environment, new curriculum, and different academic standards. In a study published in the Real Estate Economics journal, they found that children of homeowners performed 9% better in math and 7% higher in reading. While renters can attempt to provide the same stability for their children, some factors may be out of their control because they live in properties that aren’t their own.

16. Your kids will behave better.

The stability of homeownership doesn’t just affect children’s academic achievement – it can also affect their behavior. In the same study cited above from the Real Estate Economics journal, children of homeowners exhibit 1-3% less behavioral problems than children of renters. A similar Canadian study also found that homeownership decreased the incidence of behavioral and emotional problems among children ages 4 to 16 years old.

The importance of stability on children’s emotional well-being can’t be underestimated. The change in environment and separation from their peers that comes as a consequence of changing residences and schools can lead to behavioral problems. Renters and homeowners can try to manage their children’s emotional distress that comes from relocating, but homeowners have more control of when they move and under what circumstances.

17. You’ll feel better about yourself.

Kids aren’t the only ones who benefit from homeownership. Homeowners themselves often feel more at peace and in control of their environment when they own their own home. In a study conducted by University of North Carolina, researcher Kim Manturuk found that the sense of control that homeowners gain when they own their own home contributes to their positive mental health. In the Freddie Mac survey, even renters admitted that homeownership has psychological benefits. 91% agreed that owning one’s own home was something to be proud of, and 76% said that it was a sign of success. Renting from someone else can be frustrating and disempowering, but homeownership can give one a sense of accomplishment and pride.

18. You’ll be healthier.

Injuries and illness don’t happen frequently to renters, but when they do, it can be debilitating or even life threatening. For example, recent news shows that a growing number of Boston tenants are facing problems like leaky roofs, mold, debris, and piled up trash. Mold and safety hazards can slip the attention of negligent landlords, but the ones who pay for it with their health are their tenants.

The study by researchers William M. Rohe and Leslie S. Stewart shows that homeowners usually have homes that are in better condition than rental properties. In a report published by the Joint Center for Housing Studies, research shows that homeowners are healthier than renters when it comes to problems caused by dampness, toxic substances, and allergens; homeowners have more control over the maintenance of their living space and are more likely to fix a problem that can be dangerous.

19. You can have pets.

If you’re an animal lover, your desire to have a furry companion may be thwarted by strict renting rules. Landlords may be flexible when it comes to birds and fish, but dogs and cats are often deal-breakers for more demanding landlords. According to an Apartments.com study, 72% of renters are pet owners, and two-thirds of them have had problems finding housing that accepts pets. Renting with a pet can also get expensive - more than 50% of pet owners were required to pay more than $200 annually on their pet deposits. The American Humane Association survey reveals that the number one reason that pet owners give up their pets is because of “moving,” which suggests that many could not find housing to accommodate their pet. Owning your own home is a surefire way to provide Fido or Whiskers a forever home.

20. You’ll be more politically active.

Being more invested in your community also means that you’ll probably become more engaged in local politics. Zoning laws, property taxes, and crime rates seem much more relevant when you know you won’t be moving residences in the near future. Researchers have found that homeowners are more likely to be politically active in their communities for all of the above reasons. Researchers Denise DiPasquale and Edward L. Glaeser found that homeowners are 16% more likely to vote in local elections than renters. Because homeowners live in their neighborhoods for longer periods of time, they are more familiar with local politics and pay attention to ballot measures that affect their lives.

21. You’ll live in better housing.

After years of being rented out to a long line of tenants, a rental property is bound to see some wear and tear. Although it’s the landlord’s responsibility to maintain the property, some damage might slip their notice or be out of their control because of bad tenants. Researcher George C. Galster theorizes that homeowners take care of their property more than renters because they see their homes as an investment. Similarly, neighborhoods that have more homeowners are in better shape than communities with a high turnover rate, since people who live in a neighborhood for a longer period of time are more invested in the maintenance, safety, and aesthetics of their communities. Although as a homeowner you’ll be responsible for the maintenance and upkeep of your property, at least you’ll have control over your standard of living.

22. You’ll live in a safer neighborhood.

Studies show that homeownership is linked to a lower crime rate, but researchers can’t agree whether homeownership creates a safer community or if homeowners seek out safer communities prior to buying. Some researchers argue that because homeowners have stronger ties to their neighborhood and are more involved in their communities, their proactivity contributes to the lower crime rate. A study published in the American Journal of Community Psychology found that residents who lived in communities with more homeowners felt safer, regardless of the actual crime rate. Researchers Jinlan Ni and Christopher Decker calculated that increasing homeownership by 1% will decrease the cost of violent crimes in the U.S. by $959.8 million. Homeownership creates a more stable and safer community than areas with more temporary residents.

23. You’ll have something to pass on to your children.

A parent’s financial success can determine what school their children attend, the peers their children grow up with, their educational opportunities, their college prospects, their future career prospects, and their ability to grow wealth as adults. In a study published in the Journal of Housing Economics, researchers found that children of homeowners earned more as adults and were more likely to own their own home in the future. Many renters agree that homeownership provides children with benefits that they can’t gain from renting. In a Freddie Mac survey, 90% of renters agreed that a home was something that could be passed on to their children. If parents invest in their homes and build their net worth, it can greatly affect the outcome of their children’s lives.

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