As a general rule, I prefer to keep my business dealings out of my friendships and vice versa. Now, I am passionate about real estate investing and brokerage. In fact, I could talk about it for hours, and given the opportunity, I most assuredly would. However, I also realize that the subject is dismally boring to most of my pals so I keep my work-related conversations to a minimum. Frequently, however, my friends will come to me for advice. I relish the opportunity to ask those who still choose to rent why they have not yet purchased a home. While I whole-heartedly believe that buying real estate is superior to renting in almost every circumstance and that home ownership as a whole is good for society, my questions are not entirely self-interested: a good broker also never passes up an opportunity to educate and inform.

I almost inevitably receive one of two responses (and often, both). First, that renting a home is cheaper than owning. Secondly, that they are not ready to "risk" taking on a mortgage and buying a home right now.

Let's reason these objections out one at a time. Is renting really cheaper? If renting a home was really cheaper than the mortgage payment, then why are there so many landlords? The majority of landlords do not own their properties free and clear. If the rent collected does not at least pay for the mortgage on the property then the landlord has a negative cash flow situation and won't be a landlord for very long. Assuming a typical rent of $800/month (with a modest annual rent increase of 2%) at the end of thirty years, you have handed your landlord $390,000 without enjoying any of the tax benefits of home ownership and nothing to show for your payments! Renting has its place, of course, for those in need of a temporary residence between homes or those whose job situation might require them to move out of town. For the vast majority of individuals; however, renting makes little sense.

There is also the pervasive myth that owning a home is riskier than renting. Of course, there is the risk of foreclosure involved if you do not make your mortgage payments. This risk can be minimized, however, if you base your purchase price on sound financial principals (for example, the Federal Housing Administration estimates most people can afford to spend 29-41% of their gross monthly income on housing, depending on their debt situation). Unfortunately, as a society, we focus too often on instant gratification and not on sound financial planning. By owning a home, we become instant savers (assuming we don't refinance every few years to buy more things we don't need). Additionally, the equity in our home can be used as leverage in the direst of emergencies. Sadly, the equity in their home is all the savings many Americans possess upon reaching retirement age. In this situation, reverse equity mortgages can provide monthly income if you can no longer work. Ask yourself: "Which is truly the riskiest path here in Indiana?" Paying approximately the same amount you pay to your landlord now to build equity and good credit standing (and a possible income stream if you ever decide to get into the landlord business) for the future by purchasing a home? Or staying in the rental rat race in a living situation where you are building no equity and providing cash flow and tax advantages to others? In the end, it is the fear of action that is the ultimate risk.