One of the truest statements I hear people say is "I'm sick of throwing money away by renting." Renting certainly has its place in certain circumstances, such as those with very damaged credit or singles only interested in one bedroom apartments or even studio apartments. For the majority of people, however, home ownership has some incredible advantages over renting.
Owning real estate offers three powerful and distinct advantages over renting (specifically in regards to mortgages vs. monthly rent). The first being that a portion of each monthly payment is principle, whereby homeowners are essentially putting money in savings by increasing their equity and decreasing their debt in their property. The second advantage of a mortgage is that all of the interest portion of the payment each month is tax deductible, unlike monthly rent which provides no tax advantage. The third and sometimes most powerful advantage of owning properties is the appreciation factor. Studies have proven (one study in particular looks at a 400 year time span in Europe) that over time, real estate increases in value an average of 4% per year, whereas inflation has historically increased at an average of less than 3% per year. If you owned a $200,000 house, you would essentially be building $2,000 per year in real dollar wealth.
To really understand this, lets look at a beginning mortgage payment of $1,000 per month vs. a rent payment of $1,000 per month. Lets say that for a given month of the mortgage the principle portion of the payment is $100 and the interest is $900, that is like $100 each month is going directly into savings. The $900 portion of the payment can be deducted from your income taxes, so if you were in a 25% tax bracket, you would be saving $225 per month off your income taxes. For appreciation, if we use the $200,000 house example, our wealth will be increasing at $2,000 per year (with inflation factored in), that would be $166.70 per month. If you add all these up, you would basically be putting $491.70 in your pocket each time you made a $1,000 mortgage payment. You would be putting $0 in your pocket each time you made your $1,000 rent payment.
Why Buy vs Rent?