Real Estate Mogul Warns Homeownership Is Costly, Financial Advisors Offer Different View

The conventional wisdom about buying compared to renting a home is that owning a home provides you with an investment that will reliably increase in value over time, though not everyone in the industry agrees with that perception.

Real estate investor Grant Cardone said in an August interview that he primarily rents, and said he would rather pay for rent than a mortgage because renting also means avoiding the range of other costs associated with homeownership like property taxes and maintenance costs. However, some financial advisors disagree with Cardone’s perception that homeownership is more of an expense than an investment.

Owning a Home is Important Step For Many, Advisors Say

“From an investment perspective, homeownership remains the single most reliable path to long-term wealth creation for everyday families,” certified financial planner (CFP) Thomas Ravert of Pathway Capital told Investopedia, noting that homes on average appreciate in value by about 5.45% annually, higher than the average rate of inflation.

There may be other financial benefits too. A mortgage “provides tax deductions as well as growth opportunities, while rental payments do not,” said Compass Wealth Management’s Leslie Beck, adding that some of renting’s flexibility benefits could change quickly like the owner selling the property or rent rising substantially, while moving frequently when renting can also be costly and negate some of the savings compared to owning a home.

Some buyers may value building equity in the home they buy. Mark Stancato of VIP Wealth Advisors said that renters are forced to contend with “rising payments, zero return, and no stake in the asset,” adding that while homeownership may not be for everyone, it’s “misleading and irresponsible” to simply call owning a home a liability.

However, not all advisors disagree with Cardone so strongly. Some like Landon Tan of Query Capital told Investopedia that the “benefits of home ownership are overblown,” as people ignore costs like insurance, taxes, and repairs. “The idea of home as an investment also encourages people to spend more on home modifications that would never have occurred to them in a rental,” Tan said, recommending that potential buyers conduct a “thoughtful analysis” of their situation and what would be best for them.

Buying vs. Renting: Some Factors To Consider

While many advisors agree that owning a home remains a reliable long-term investment, they also agree that it’s not necessarily the best route for everyone.

In a high-mortgage rate environment like the one homebuyers currently face, some advisors like Luke Harder of Claro Advisors say that “renting has become relatively more attractive” as avoiding a mortgage can provide more savings when rates are high and those savings can be invested.

Buying a home is a huge financial commitment. Madeline Maloon of California Financial Advisors said that it’s important to consider whether you are “ready for the financial burden of owning a home.” Maloon also suggested making sure you have an emergency fund of up to a year, a budget to confirm you’ll still be able to save when owning a home and have enough for things like closing costs, and ensuring other debts are taken care of first.

One of the most important factors to keep in mind is how long you expect to live in that home, according to Clark Randall, a CFP with Creekmur Wealth Advisors.

“A longer stay generally makes buying more financially advantageous: mortgage principal and interest (with a fixed rate) remain steady and eventually disappear, even though taxes and insurance will rise. If you expect only a short stay, renting is usually better since you avoid the upfront costs of a down payment and closing,” said Randall.

The Bottom Line

Most advisors disagreed with Cardone’s perception that renting is mostly superior to buying, as they believe more in the idea that owning and staying in a home remains a reliable long-term investment that can boost your net worth. Still, others cautioned that the decision to rent or buy depends on each person’s situation and warned against becoming “house poor,” or investing too much of your income on owning a home and not leaving enough for savings or other spending.