Owning versus renting: which is better? We will provide a basic comparison between owning and renting a home. Oftentimes a home is thought of as an investment, however we believe that it is more of a consumption item than an investment item, with the added benefit of serving as an inflation hedge for the owner.
As an example of this, consider a 30 year fixed mortgage note which is paid exactly as agreed. Over this 30 year period, rents and wages will rise, however the mortgage payment will remain constant. There may be times when housing prices rise at a substantial rate however research has shown that in the long run housing has merely kept pace with inflation since 1890.
A large part of this is due to the large transaction costs incurred during purchase and sale of real estate. These costs are much higher for a typical consumer purchasing a home than they are for typical professional real estate investors, who purchase real estate regularly and thus enjoy an economy of scale due to their expertise and the volume of transactions which they engage in. Owning a home also results in additional time which must be spent by the homeowner in maintaining the home, while renting will typically require less time and expense on maintenance.