Trying to Build Wealth? Buying a Home Might Be a Mistake

Photo by violetkaipa / Shutterstock.com

Not sure if you want to buy or rent a new house? A new report reveals that renting might be the better option, especially if you’re looking to build wealth.

According to Florida Atlantic University’s Beracha, Hardin & Johnson Buy vs. Rent Index, a combination of slowing rents, ballooning home prices and rising mortgage rates has tipped the scale from buy to rent in many parts of the country, particularly if you’re looking to build up a nest egg.

The index helps determine whether it’s more advantageous to purchase a home and build equity, or to rent the same property and invest the down payment money elsewhere.

Ken Johnson, a real estate economist and one of the index’s creators, says in a statement.

“On the margin, more potential owners should favor renting and reinvesting in a portfolio of stocks and bonds as opposed to ownership. This shift should slightly lower the demand for ownership and contribute to the slowdown in housing prices around the country.”

Of the 23 cities included in the buy vs. rent index, three — Dallas, Denver and Houston — “are in heretofore unseen territory in terms of both pricing and BH&J scores,” the authors state.

Eleven cities are in buy territory, and nine other cities have an index score around zero, which suggests a tossup between buying and renting. You can find the list at the FAU website.

Experts are quick to point out that renting is not a good option for everyone. Greg McBride, chief financial analyst with Bankrate, tells the Sun Sentinel:

“For disciplined individuals, renting can be just fine. The problem is, not many people are disciplined about investing their spare cash. One of the reasons why homeownership is financially beneficial for so many people — it’s not because it generates attractive rates of return — it’s because it’s a form of forced savings.”

If you’re considering renting or buying a home, check out the following for helpful tips and advice:

Are you surprised that renting a home can be a better wealth-building option than buying a home? Sound off below or on Facebook.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

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