Owning a home may help you save money, but it won’t help you make money. Households are better off taking control of their finances than relying on fluctuating home values. That is the finding of a new study conducted by Florida Atlantic University, Florida International University and the University of Wyoming. CNBC reported:
“On average, renting and reinvesting wins in terms of wealth creation regardless of property appreciation, because property appreciation is highly correlated with gains in the traditional financial asset classes of stocks and bonds,” wrote study co-author Ken Johnson of FAU’s College of Business, in a release…
Still, researchers in the study claim the old adage of “throwing your money away on rent,” doesn’t hold up. That is because it assumes that the extra money a renter saves by not owning a home and not saving for a downpayment is simply spent on goods or services and not invested.
“When you assume that those monies are reinvested at a rate of return, renting, on average, wins in terms of wealth creation,” Johnson said. “Of course, many renters will not reinvest those monies and will instead use them for consumer goods, which is the least desirable option in terms of building wealth.”
In other words, the rent argument only works if the renter invests the rental savings rather than consuming it.