People are drawn to buying a home for all sorts of reasons: more space, a backyard for the dog, the investment opportunities, or simply because want.
And it can be great for them, but you don’t have to beat yourself up with someone else’s measuring stick.
If you’re not in a position to be able to (or even want to) buy a home, you may have heard that renting is just as bad as burning your money. But it is not a fair comparison.
This is how being a renter can work to your financial advantage.
Take advantage of pandemic prices
At the start of the pandemic, rents in expensive cities like San Francisco, New York and Seattle plummeted. Although prices are beginning to recede, they are still significantly lower than they were before, according to Apartment List, a real estate data site.
As a renter, you can use this to your advantage. Working from home is sure to be the norm for a while longer, and people are flocking to midsize markets and smaller cities in search of more space.
If you want to continue renting in the city, now is the time to secure a lease at a great price; You can even negotiate with your current owner for an even better rate.
Misconceptions about renting vs. owning
You’ve probably heard that renting is essentially throwing your money away. Or that owning a home is the only investment worth making.
But those claims are based on some shaky assumptions:
In any situation, that is not always the case.
No guaranteed returns
In fact, a report on homeownership in Business Review with the appropriate title, “American Dream or American Obsession?” shows that the real rate of return on US real estate between 1975 and 2009 was less than 0%.
For its part, the average annual return on the stock market was 3.375%, after taxes and inflation, between 1975 and 2009, according to the Business Review study. And it’s never been easier to put money in the market: all you need is a smartphone app.
And don’t forget that owning a home also comes with a number of sunk costs, like mortgage insurance, property insurance, interest, and property taxes. And when something breaks, you should fix it yourself instead of just calling the landlord.
All of that adds up and you will never see a return on those investments.
there’s more to life
Finally, the premise that owning is better than renting also assumes that owning a home is your #1 priority, regardless of what else you might spend your money on or what you’d like to do with your life.
If you can’t imagine yourself repainting that old white picket fence every spring, there are plenty of other enriching things you can do with your money.
Other ways to enrich your life
When you’re paying a reasonable amount of rent, you free up all kinds of money for other activities that may be financially worthwhile like owning your own home.
Here are some.
Investing in stocks, bonds, and ETFs, whether through a certified financial planner or a low-fee investing app, is a great way to grow your money.
You don’t even need thousands of dollars to play the market: some apps will automatically invest your spare change in credit and debit card purchases.
If you want to grow your money and are already investing or risk-averse, you should consider a high-yield savings account. This type of account can pay up to 200 times more than your standard savings account.
Whatever you want to set aside your money for, whether it’s for an emergency, vacation savings, or a big purchase, a high-yield savings account can be the perfect place to keep your money safe. Y working for you
3. Pay off debt
Credit is convenient, but interest is a killer. If you’ve been relying on your plastic during the pandemic, you’re probably racking up a lot of expensive interest already.
It may be time to consider putting the savings toward your home cost to consolidate your debt. By putting all of your balances into one lower-interest loan, you can make your debt easier to manage and even pay off sooner.
If consolidating all of your debt isn’t an option, be sure to focus on your higher-interest loans first. And feel free to make additional payments when you can afford it.
4. Look for deals
Meanwhile, living modestly doesn’t have to feel like a punishment. In fact, the more excess spending you eliminate, the more money you can spend on what really matters to you. Your standard of living will be higher overall.
So if you like to shop online, you can download a free browser extension that will instantly find the best deals and coupons.
5. Invest in yourself
It’s never a bad idea to improve your business skills by going back to school. Even if you don’t have all the funds up front for a college program, getting a student loan at a competitive rate can help make your dream come true without costing you all your savings.
“But having a house is my dream”
If your heart is set on becoming a homeowner, you are not necessarily destined to become poor.
Just be sure to follow these tips to ensure you come out in the best financial position:
Get the lowest possible rate on your loan. The best way to save on your mortgage is to shop around for the best deal. Just 0.5% lower interest rate can save you tens of thousands of dollars over the life of your loan.
Save on home insurance. Homeowners insurance is required, but paying more is not. Just like with your mortgage, shopping around for the lowest premiums is your best bet for saving hundreds of dollars on insurance each year.
Make a plan to be debt-free in retirement. When you’re designing your retirement plan, you don’t want to keep paying your mortgage, especially if your home will represent a portion of your investments. Be sure to keep this goal in mind when budgeting for a home and applying for a mortgage.