Advantages and disadvantages of home ownership versus renting

¶ … Home Ownership and Rental

Home Ownership

There are both advantages and disadvantages to owning a home instead of renting private property. Owning a home has represented an important milestone in life for many people since the middle of the 20th century. It represents a stability and a permanence to the family and to its roots to the surrounding community that private property renters may not experience as often. Homeowners have complete autonomy to make any legal use of their property and to make any changes without restrictions, limitations, or the need for notice and approval of changes by a landlord or property manager. The only restrictions to a homeowner's autonomy in that regard are those arising from applicable ordinances or property codes under local and state law.

Until the recent collapse of the housing market in 2007, the value of private property had never before gone down in the modern era. Owning a home was always partly an investment in the future because homes always increased in value over time. While the current situation still makes home purchasing much less advisable in most situations today, once the market normalizes again over the long-term, it is likely that home ownership will continue to be a safe investment over the long-term, just as it always was.

Naturally, one of the main disadvantages of home ownership (especially right now) is that a home whose value declines instead of increasing represents a loss of net worth of the owner. Other disadvantages include relative inability to change locations if circumstances, opportunities, or local environments change. Also, net worth that is locked up in the value of a home is not available for other investments.

Private Property Rental

There are also advantages and disadvantages to renting a home or apartment instead of owning one's own home. Obviously, those for whom the idea of owning a home represents an important goal will not receive that same satisfaction or gratification from renting property. Whereas net worth that is locked up in a home generally increases over time, there is absolutely no residual value to money used to pay rent on property. Homeowners (generally) pay off a mortgage on a monthly schedule but that money goes into the value of their capital investment in their home; money paid for rent is spent and gone. Over the course of a decade, a homeowner will typically have paid off and acquired ownership equity in approximately one-third of his home; a renter will have paid out approximately the same in rent over that time but retain no equity in return. Homeowners may also be able to use their home equity as collateral for loans to help them pursue other investments. Home renters cannot do the same because they hold no ownership interest in the equity of the property.