Homeownership is the centerpiece of the American dream; most of us have internalized certain ideals: Buying a home builds equity, putting you on the fast track to building wealth. Renting, by contrast, is essentially throwing money to the wind. Yet, more and more American households, across all income levels and generations, are renting rather than buying their homes.
According to the Joint Center for Housing Studies of Harvard University, renters now accounting for 37% of all households, the highest level since the mid-1960s and more people may be renting for longer. Does that mean people who rent for extended periods, perhaps decades — even a lifetime — are forever at a disadvantage?
Not at all! Renting can still be financially advantageous under certain circumstances. Consider the work in 2012 by the academics Eli Beracha of Florida International University and Ken Johnson of Florida Atlantic University. They simulated a horse race between buyers and renters, and concluded that in many cases, renters came out ahead; at least during the eight-year stretches they studied.
Theoretical renters put their down payment in a portfolio that often consisted of more than 50% stocks (the professors created a portfolio that approximated the risk of owning a home), and continued to invest any savings from renting. But this assumes that there are savings from renting, which is not always the case, and that the renter is disciplined enough to actually set the money aside.
So in the end, it’s all about how your organize it and if you are able to discipline yourself well enough to succeed in your choice!
If you’re considering renting or buying a home, contact Meredith McKenzie at Podley Properties, 897 Granite Drive Pasadena. For more information, call (626) 243-4330 and (626) 344-9755 or email her at [email protected].
