By: Ryan Ponce On: May 11, 2016 In: Advice, Downtown San Diego, Lifestyle Comments: 0

Rent vs. Own has always remained one of the largest topics in real estate and wealth management.

In a good market you always see articles talking about the cost of renting versus buying, whether its from the news, real estate articles, or economic forecasts. Majority of the time, they don’t really jump into the figures though. It is a complex topic and there are a million factors that change the circumstances. I wanted to discuss the average situation and explain why there is no question owning a home is financially more beneficial then renting.

Average Net Worth – Homeowner Vs. Renter

Every three years, the Federal Reserve conducts a study that analyzes data from all economic and social groups nation wide. This year, The Federal Reserve is scheduled to release the next report (*2016 is projected). These studies give a clear indication of the market, consumer confidence, growing/declining wealth and much more. Over the last 20 years, this study has consistently shown that the average homeowner has 30 to 46 times more wealth than that of renters! You can find this statistic all over the internet, but I want to focus on why this is true.

  • Own
  • Rent

Major Benefits of Homeownership:

In an effort to explain the benefits, I am going to talk about a real property that is currently on the market (5/11/2016). If you Click Here you can see the “Buy of the Week” I will be discussing. This breakdown can be done with any property currently on the market. I will be using the terms to the right for all purposes of conversation in this article. All terms are subject to change. Keep in mind, there are loan programs that allow you to buy with little to no money down.

  • Purchase Price: $489,000
  • Loan Amount (80%): $391,200
  • Interest Rate: 4.0%
  • Term: 30 Year Fixed
  • Homeowner’s Dues: $318/mo

Forced Savings

Owning a home forces you to save money in the form of equity. Each year, you will pay more towards your initial loan balance and less in interest. The chart shows the increased savings over a 10 year period. This is money that the majority people renting have a hard time saving. If you are paying rent, you are contributing to the owner’s savings or equity versus your own! In the first 10 years, you will have paid down the loan by $82,997! In years 11-20, you will have contributed $123,735 towards your equity and in the last 10 years, you will have paid the remaining balance of $184,468.

Unlike rent, this is money invested that you can potentially get back when you sell your home. I can’t guarantee that your home will stay the same value or go up in the future, but I like your odds. What I can guarantee is that when your lease ends, your landlord won’t hand you a stack of money for renting their property.

Tax Benefits of Homeownership

When you own a home, typically your mortgage payment includes Principal, Interest and Property Taxes. We discussed principal in the “forced savings” section above. Now we are going to discuss interest and property taxes, as these items are typically tax deductions that would save you thousands per year.

If you look at the pie chart, you will see the breakdown of your first mortgage payment. As you progress through the life of the loan, these items will change. On a 30 year fixed rate loan, the principal and interest would remain at $1,868 per month, but the amount allocated to principal increases and interest decreases as time passes. Over the first year, you would pay approximately $15,523 in interest and $5,746 in taxes (at 1.175% tax rate for San Diego). This is one of the largest benefits of homeownership!

First Month’s Payment Breakdown
  • Principal
  • Interest
  • Taxes
  • Final Payment: $2,347

More Stability

Owning your home provides a sense of stability that renting does not. When you are renting, you typically have a lease, and each time it ends it could lead to a move or higher rents. Over the next 3 years, rents are expected to rise at least 10-15% in San Diego. If you own your home with a fixed rate mortgage, you know where your payments will remain.  You can control your future and do not need to worry about moving every year.

Real estate also has proven to be one of the most reliable investments. While if you make strong investments in the stock market, you could potentially see huge gains, there tends to be a lot more risk involved. Also any profit you receive through the stock market, you will be required to pay capital gains tax. Real estate has a protection from capital gains if done correctly. If the property is your primary residence a minimum of 2 out of the last 5 years, sellers have a capital gains exemption of $250,000 if single or $500,000 if married, on the net profit. This can be applied once every 2 years.  Real estate can also be a potential hedge against inflation. Historically, rents and home prices rise with inflation. This coupled with the capital gains protection for primary residences makes real estate a unique and stable long term investment opportunity.

The Numbers


  • Monthly Payment: $2,665 (Includes HOA Dues)
  • Conservative Appreciation: 3%
  • Equity Gained Over 10 Years: $232,032
  • Total Housing Payment Over 10 Years: $319,800


  • Approximate Monthly Rent: $2,600
  • Conservative Appreciation: 0%
  • Equity Gained Over 10 Years: $0.00
  • Total Housing Payment Over 10 Years: $312,000

If we compare 10 years of owning vs. renting, you will see the cost of housing is significantly less if you own your home. I have calculated the numbers based off a conservative amount of 3% appreciation year over year. At the end of 10 years, housing has cost the renter in the scenario approximately $312,000 with nothing to show! This is also based on the highly unlikely event that their rent never went up over those 10 years. The person who purchased spent a similar amount of $319,800, but also paid $82,997 towards principal and the property has appreciated by $149,034, which would leave them with an estimated $329,831 in equity! Is your landlord going to give you a check like that?  This does not even take into consideration the potential tax benefits of homeownership!

*Majority of these calculations are based off estimated numbers and scenarios. Buyers should discuss what is the right move for them with their financial adviser/accountant.* 

Give me a call today at (619) 228-6790 or email me at Ryan@livingthesandiegolife.com for more information or to schedule a tour of the neighborhood!

And Always Remember, It Matters Who You Work With!