Why Homeownership is an Investment Strategy

May 5, 2019Mandi Morrison

The number of middle aged people who rent in the United Kingdom has doubled since 2006. The reason? Rising housing prices have caused home buying, especially for families that have child expenses, to be pushed to the back end of people’s financial goals. BBC reports that “a record 1.8 million families with children rent privately, up from 600,000 15 years ago”. This is indicative of a larger problem currently being faced by people living in western countries, which is the inability to save money and accumulate wealth. Our budgeting guide is an extremely effective way to ensure you’re making the most of your money, but long-term investments should also be a necessary feature of any family’s financial plan. Homeownership is an extremely effective way to grow wealth and the homebuying process (especially for first-time home buyers) should be prioritized in every family’s budget.

The Problem

With rental payments, your money essentially disappears (or actually ends up into the hands of your property owner). Nothing is retained from rent. With homeownership, your mortgage payments go into the equity of your house. The only portions of these payments that aren’t being invested into equity are primarily from taxes and loan interest. In 30 years, when the kids are all moved out, the house will be an asset likely worth more than you paid for it. In the UK the average housing value is currently £230,776. For homeowners that have fully paid their mortgage off, that’s a big chunk of money! Especially compared to renters who don’t own a home.

Being a Property Owner

For the average person, being a landlord might be the ultimate long-term investment strategy. It doesn’t require massive amounts of capital and it provides a high return on investment. Not only does someone else’s rent pay off your mortgage and build equity into your property, but it will most likely put some extra money in your pocket each month as well! It’s important to first analyze the property and rental potential in order to make a decision that aligns with your financial situation. But buy-to-let loans are great ways to afford investment properties when you don’t have the capital.

When it’s Okay to Rent

One situation that makes a case for renting has to do with the length of time the individual plans on living in that location. There are some initial costs when purchasing a home that might warrant renting a property if your plan is to only stay in a location for a short period of time (less than two years) which could cost up to £4000. Moreover, with renting, the landlord is financially responsible for maintaining the property and repairing any appliances or equipment that may break. Depending on the age of the house these expenses could be expensive or non-existent.

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