The idea that paying rent is “throwing away money” has led many Americans to believe that buying a home is always the better option for their pockets. Mortgage is always going to be cheaper than rent, plus you’re building equity. On the other hand, rent money seems to disappear into a black hole. However, buying or renting all depends on your life plans and financial situation. We’ll explain why with today’s market, rent along with sale-leasebacks might be the right option for you.
Buying – Benefits, Disadvantages, and more
Owning a home is an American’s most valuable asset. You get to choose how you design it, what goes on the back yard, and more importantly it provides a sense of stability. If the market is in the right place, you’ll build wealth just by owning your place.
Nevertheless, owning comes at a cost. This same responsibility that grants the freedoms and benefits mentioned above could lead to great risks and financial struggles. When owning, you’re responsible for all types of repairs and maintenance. If your home has a leak, plumbing issue, or if the A/C unit breaks down, you are responsible for calling and paying the right person to fix it.
Another inevitable truth about homeownership is that just as you can build equity because of your home’s appreciation, you can lose money because of extraordinary factors. To start off, your annoying want-to-be rockstar neighbor lowers the value of your home, and the gnomes on the yard next door do as well. On a larger scale, if the real estate market is not doing well your asset will lose value. The day you want to sell your home, you probably won’t be able to sell at a price that fills your needs.
At the end of the day, it all depends on your lifestyle and the amount of money you have available to make a downpayment. Someone settling and starting a family will most likely prefer homeownership because of the long-term loans and stability it provides. If this is your first time moving alone and aren’t sure how long you’ll be staying, rent is probably something to explore.
Renting – Benefits, Disadvantages, and more
Renting a house/apartment is generally more expensive than buying. This is because leases are more flexible and short term. Also, a landlord takes responsibility for everything that happens to the space when you’re living in it. If the fridge breaks down, it’s their responsibility and cost to fix it.
Some disadvantages of being a tenant apart from the elevated price of rent is the fact that there is no sense of ownership involved in the deal. The landlord could make changes at their liking and, in some cases, raise the rent to something that’s not in your price range. When this or something else happens and the lease is over, nothing belongs to you. So why would you throw your money into the pit?
Renting provides flexibility. People who are moving for a temporary job, going to college out of state, or simply exploring the ways of life could benefit from renting. In some cases, renting could even save you money and help you pay off debts.
Selling to Rent
If you’re a homeowner looking to free up cash, selling to rent could be for you. Through a sale leaseback agreement you could become a tenant without leaving the comfort of your home. This would relieve you from property taxes and maintenance costs, along with freeing up equity that could be used to pay other debts.
Paying your mortgage and credit card debt could sum up to be a lot of money, potentially even more than paying rent. When price appreciation is no longer there and your asset stops rising in value, selling in order to pay off debts is a sound option.
According to an article by Ramsey Solutions, “Your mortgage payment should be no more than 25% of your monthly take-home pay.” For example, Karen and Kevin owe $20,000 in student loans. The couple bring home $5,000 a month and their mortgage is $2,000 a month, which is 40% of your household income. In this case selling their home is (economically) a no brainer. Nevertheless, Karen loves the neighborhood and wishes they could stay living there.
The couple start researching and get in contact with Sell2Rent. The sale-leaseback platform finds them a buyer that pays close to market price for their home and allows the couple to stay there as tenants.
Karen and Kevin sell the home and get $30,000 in return. $15,000 goes directly to their student loans while their new, elevated, budget allows them to pay off rent and other expenses. Instead of taking multiple years to pay off their debts, they’re now off the hook in a couple months. All while staying at home through a sale-leaseback agreement.