Are you considering whether to sell or rent your home? It's a big decision, and there are pros and cons to each option. In this video, Andrew Canavan will explore the advantages and disadvantages of selling vs. renting your home, so you can make an informed decision. We'll discuss factors like cash flow, property management, tax implications, and more. Whether you're a homeowner looking to make a move, or an investor seeking to maximize your returns, this video will provide valuable insights to help you weigh your options. Don't miss out on this important discussion!
As a realtor, I work with a lot of people who are currently renting and are considering purchasing their first home. It's extremely rewarding to be handed the keys to a property that's yours when you've been renting your entire life, and it's one of my favorite parts of my job.
Yet, every day I talk to people who are currently renting and they're financially capable of purchasing a home. Yet for whatever reason they choose to continue renting. In this video, I'm going to be going over why purchasing a home is one of the best financial decisions that you can make for yourself, your family, and your financial future. Hi, my name is Andrew Canavan with Whissel Realty Group here in San Diego.
There are various reasons why current renters could choose to not purchase a home when they're financially capable of doing so. At the end of the day, if you cannot afford the monthly payments of a mortgage, then you absolutely should not be purchasing a home. Yet every day I run into people who are currently renting and are financially capable of making that leap from renting to home ownership, yet choose not to do so for various reasons.
A recent study done in 2023 from the Federal Reserve shows that a homeowner's net worth is over 40 times more than a renter's. The average renter's net worth in the US is roughly $6,300 versus the average net worth of a homeowner around 255,000. That is a huge difference. So, why do people continue to rent when they're capable of purchasing a home? Well, at first, renting can seem like the easier option, with no upfront costs, more flexibility to move and when you compare it directly side by side with buying a home, at first, renting can seem cheaper. However, if you're staying in the home for at least a couple years, then it's extremely obvious why home ownership is the best financial decision.
This is because there is one major distinction between paying rent and paying a monthly mortgage on a home that you personally own. When you pay rent, you are literally throwing money away every single month and it's actually worse than that. You are paying off someone else's mortgage so you're helping your landlord become financially free from your hard-earned income. When you choose to purchase a home and pay your monthly mortgage payments, you're investing in yourself, building equity and building your net worth while the home increases in value over time, building you even more equity. Owning a home is kind of like having a retirement plan that you live in, as opposed to renting, flushing the money away every month and paying off someone else's mortgage. Let's take a a look at some data.
According to Zillow at the time of making this video, the average three-bedroom home in San Diego rents for roughly $4,100 per month. That's nearly $50,000 per year that you're throwing away to rent and it's not getting any better. In the last three years alone, rent has increased in San Diego, roughly 36%. That's the difference between a $4,100 payment today versus a $5,600 payment just three years from now if we stay at that pace. At the same time, home values in San Diego County have increased roughly 22%, which means that the average homeowner here in San Diego has seen about $167,000 on average added to their equity and network.
When you own a home and you get locked into a 30 year fixed rate mortgage, your payment does not increase overtime. So, if you are able to make those payments on year one, then you will be more than happy to be able to make those payments for the next 10, 20 and so on years until the home is eventually paid off and now you're just sitting on a fat stack of cash in the form of home equity. This becomes even better when you realize that you can refinance the rate on your monthly mortgage and actually lower your monthly payment.
Current interest rates are one of the main things that deter renters from purchasing a home right now. If you choose to wait and try to time the market perfectly then you could be making a huge mistake and you could miss out on a lot of potential equity. Plus, when interest rates drop only 1%, nearly 5 million new buyers flood to the real estate market and these are going to be buyers that you will directly be competing against when submitting offers on homes. So, if you wait for interest rates to go down, these homes will have so many offers and the price of the home itself will go through the roof because of the bidding wars that are created from more buyers being in the market. So, if you can financially afford a mortgage payment at today's rate, then waiting and continuing to rent is one of the worst financial decisions that you could possibly make.
There's two sayings that we have in real estate that relate to this concept. First, time in the market is much better than timing the market, and second is the fact that you marry the house, but you can always date the rate. The media has been claiming a recession is coming for years and years and if you chose to wait and not purchase a home, you would've missed out on life changing amounts of equity while paying off someone else's mortgage in an increasing rental market. At the end of the day though, the fear is still understandable and people are shaken up by what happened in 2008 and are afraid that that could happen again. And while no one can tell you with 100% certainty what's going to happen with the economy or the real estate market, here's some information that will help ease your mind and help you realize that today's market is completely different than what happened in 2008.
Let's say the economy was to go into a recession. How would that impact the real estate market? Over the last six recessions, home values have only decreased two times. Once was in 1991 where the damage was very minimal and the other one was of course in 2008. It's actually much more common for real estate values to soar during these recessions as investors jumped from other high risk investments to the more safe and secure real estate market. Want a recent example, take what happened in 2020 when COVID first hit, we went into a temporary recession, interest rates went down and the real estate market soared. Okay, so you may be asking, so what caused the major crash in 2008? Well, there's a few factors that go into it, but the main two to focus on are the loan requirements back then compared to now and the supply and demand. People like to joke that back in the early two thousands if you had a heartbeat in a brain in your head, then the lender would give you a loan.
And to tell you the truth, that's not far from reality. Lenders were giving loans to pretty much anyone. In many cases, credit wasn't much of an issue with these loans and proof of income, job security that wasn't needed. These loan guidelines are a polar opposite to what we see with lending guidelines today. The government wants to make sure that what happens in 2008 never happens again. So, the loan guidelines are much stricter and lenders are only giving out loans to the most qualified buyers in the market. In addition to the stricter loan guidelines that we see now compared to the early two thousands, the supply and the demand in the real estate market is completely flipped. It doesn't take an economics degree to see that with the supply of homes being built and homes for sale in the early two thousands versus the demand of buyers to purchase these homes, we are clearly going to be set up for a disaster, especially when the little demand that was there compared to supply was from people with loans that they couldn't afford. Now compare that level of supply and demand to the level of supply and demand that we see in today's real estate market.
Especially here in San Diego, we can see that right now the demand of high qualified buyers dramatically outweighs the supply of homes listed for sale and homes being built. And when demand outweighs supply like this, there's only one direction real estate prices can logically go. Clearly, owning a home is a much better financial decision and we shouldn't be as afraid of a market crash like we saw in the past. Plus, owning a home has a lot more benefits than just financially. When you own a home, you have a sense of pride and stability. You're able to live a life in a community that you love and you're able to express yourself more freely without the restrictions from a landlord. Ultimately, choosing to purchase a home is something that's extremely personal to you, but the financial benefits of home ownership are definitely something that should be considered. If you're financially capable, then it's worth exploring the benefits of home ownership over renting.
And if you want to know more about the benefits of owning a home or you want to dive into your specific situation when it comes to home ownership, talk about the market or anything else related to real estate, then I'd love to sit down and have a conversation about how all this relates to your specific situation and how I can help you become a homeowner. Give me a call anytime at 314-9355.
