“What if I’ve never owned a home before?”

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I am 37 years old, and like most people I know, I live in a rented apartment in New York City. I’ve got a pandemic deal, so my rent is right now ($3,500 for a good size one bedroom with balcony in the East Village), but I’m sure it will go up in November. I should be fine (I make about $125,000), but the fact that I’m at the mercy of a greedy business owner raised a question: Should I think more about buying a place?

I know home ownership is a good way to build equity, long-term wealth, etc. But it was never something she dreamed of. If anything, it sounds like a big headache. My parents own their own home, and this takes a lot of work. Renting obviously has its downsides as well, and I know I’m technically throwing in that money every month. But the cost of buying a place in NYC is exorbitant, and I actually like the freedom to rent.

However, over the past few years a lot of my friends have started talking about home ownership (usually out of town), and it’s starting to make me wonder if I’ll ever regret my stance on this. Should I make it a higher priority? Is there anything missing? And if I’m not a homeowner, are there other ways I should build equity instead?

Let’s start by debunking the myth that rent is a “waste of money”. Renting and owning are just different ways to pay for a roof over your head — a worthy expense — and there are pros and cons to each. Renting can be a great and affordable decision in the short and long term. While buying a home allows you to build capital, it’s not always a sure bet. The house is not a closed financial system; It is a complex and risky asset and can also be costly in the ass.

In fact, some of the most financially savvy people I know are renters by choice, which means they can buy but don’t want to. (For example, Ramit Sethi, author I will teach you to be richHe has insight into when and why it makes sense to buy a home.

This is also where I have to mention that I have been a homeowner since 2018, and while I am very grateful for the confluence of events that allowed us to purchase our apartment, the hours and money involved (which included replacing the entire HVAC system) and most appliances during the early years which we lived here) is too frustrating to add. I still worry about leaks whenever it rains. I know these are lucky issues, but take it from me: owning a home isn’t always a fun ball to pick out kitchen tiles and discover beautiful floorboards under old rugs. It is also time consuming, expensive and cumbersome.

Back to your question. For the vast majority of people, there are three reasons to buy a home: (1) you can afford it, (2) you Wants be a homeowner, and (iii) plan to live in said home for at least five years, ideally more (making money from real estate is usually a long game). Unless you can check all three of these boxes – and it seems you can’t – you will probably keep renting.

However, I know that renting is also complicated. It’s annoying to be upset by a faceless landlord who will take any opportunity to extract more money from you. “Both rent and purchase are subject to rising costs, but with rent, these costs are easier to spot,” says Sarah Acebido, a certified financial planner and professor of financial planning at Texas Tech University. The important thing to remember is that they are not random. The landlord can only charge the same amount as potential tenants — that is, you’re willing to pay. (In financial parlance, this is known as “how much the market will bear.”)

People often say that when you rent, you’re only paying the landlord’s mortgage rather than his own mortgage—for example, they’re sitting on esthetics while you struggle to pay their bills. In fact, many landlords lose money on their property all the time. While rents are really outrageous at the moment, recent reports show that the monthly costs of owning a home are still higher even in expensive urban areas.

(If you’re curious about what homeowners pay so much these days, here are a few examples from my own experience: insurance, mortgage interest, property taxes, sidewalk repairs, and the cost of someone to deliver a new dishwasher after an old mysteriously leaked all over the floor and into a neighbor’s apartment Downstairs, etc. If you rent, this is what your rent checks cover In addition to on the owner’s mortgage.)

You asked if you were “missing something” about the allure of buying a home, but I don’t think you are. Instead, many people are drawn into the American dream of owning real estate as a standard of financial security even though this is no longer the case.

“For previous generations, owning a home was their best opportunity to build equity in something,” says Katie Gatti, personal finance consultant and creator of Money With Katie. But a number of things have changed in the past 20 years. For one thing, the average home was more expensive, so the barrier to entry for potential homebuyers was lower. Conversely, the barrier to investing in other assets – such as the stock market – is now practically zero. Anyone with an internet connection and a few dollars can start building shares in low-cost index funds that previous generations didn’t have access to,” Gatti adds.

This brings us to the final part of your question: What should you do to build justice While that to buy a house. It looks like you’re on the right track already. “Be sure to increase the contributions to retirement plans available to employers, such as a 401(k), for employer matching and/or profit-sharing contributions,” Asebedo says. “You also want to create a flexible emergency cash fund so you don’t have to dip into your investments if something goes wrong.” You can boost your long-term investments with a Roth IRA, which gives you more flexibility to access that money before retirement should you need to. The general rule is to keep your rental costs under 30 percent of your household salary so that you have enough money to save 20 percent of it.

Average annual returns on long-term residential real estate investments are roughly the same as the stock market average annual returns (about 10 percent), and that doesn’t take into account all of the additional costs of maintenance over the years. So, if you only invest your money instead of using it to buy a house, the math is technically in your favor.

Imagine this outcome: “You can continue to rent and invest all your life and retire with a healthy portfolio that can produce annual returns high enough to support living in an amazing rental space that requires no maintenance from you,” says Gatti. “The idea that everyone should eventually buy is based on this faulty logic that underpins the entire home ownership market as the most cost-effective path, and that’s not always the case.”

Charlotte Cowles, financial advice columnist for The Cut answers readers’ personal questions about personal finance. Email your money puzzles to [email protected].

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