It’s Perfectly Okay To Rent A Home. It Really Is!
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You’ve been trained to think that homeownership is the ultimate goal.
That there is actually a rent vs. buy “debate”.
You’re trained to think you are a responsible adult when you own a home.
The “experts” always said that buying a home is the best investment you can make.
Realistically, that isn’t always the case.
There are drawbacks to owning a home.
Sometimes the smart and reasonable choice is NOT to own but to rent a home.
There could be a variety of reasons to rent.
The decision of whether you should own a home or rent should be weighed carefully.
You need to consider your short-term, as well as your long-term needs.
And those needs need to be your own, not someone else’s.
Would You Save Money Renting?
In some markets, owning a home is cheaper than renting.
Sometimes the opposite is true.
Use a home loan calculator to estimate how much your monthly payments will be.
Many people stop here, but there are many other costs of homeownership you must factor in.
You will also need to pay property tax, property insurance, and home repairs.
That’s not even considering needing a sizeable down payment available or else having to pay even more monthly due to private mortgage insurance requirements.
When you factor in all of the expenses, you may see that renting can save you quite a bit of money every month.
Long-Term Financial Goals
While home values can appreciate, that is not always a given.
If you rent, you can use the cost savings for a number of other purposes.
Fully funding a Roth IRA.
Increasing your 401(k) contributions.
Investing in yourself by starting a business.
Taking a longer-term approach can help you make the right choice.
Will You Stay For 5+ Years? (Growing Family/Upward Mobility)
Many experts recommend you not buy a home if you will not stay there for five years or more.
After the realtor’s fees and closing costs as well as the home loan interest you pay at the front of the mortgage, getting ahead financially when owning a home for such a limited time is difficult.
For people who may be planning on starting a family, it pays to have the freedom to upgrade (in size) with little notice.
It’s a huge PITA to plan for a sale, look for a new home, and do all of the due diligence stuff like getting your financial life and monthly budget in order.
That’s on top of going through the pregnancy and getting that part of life situated!
On top of that, you have to consider the capital gains tax if you make a profit.
By living in your primary residence for 2 out of the previous 5 years–and assuming you didn’t sell a primary residence in the last two years–you can exclude up to $250k ($500k if married filing joint) of capital gains from the sale.
Upwardly mobile folks will also be able to take advantage of their situation by not being tied to a long-term mortgage.
If you’re just starting out and plan to make huge strides, it’s ok to want to have a little lifestyle inflation.
I mean, no one wants to live like a college student forever–well, I know a lot of “dudes” who wouldn’t mind going through life like it’s a never-ending frat party but let’s grow up a little.
You’re perfectly within your rights to want to live in a better neighborhood when your budget allows for it!
Job Security (Or Insecurity)
Losing income is never an easy event to accept.
Considering the security of your job when choosing living arrangements makes sense.
If you do lose your job as a renter, the situation may be a little easier to deal with.
You don’t have a mortgage hanging over your head.
A large real estate tax bill isn’t something you need to worry about.
Costly repairs aren’t things you have to deal with.
Once your lease is up, you can walk away.
You may even be able to transfer the lease if the circumstances are right.
In the worst-case scenario, if you have to break your lease, you’ll likely only lose your deposit rather than thousands in equity.
Travel Often?
If you travel frequently, renting may make more sense.
You don’t need to worry about home upkeep when you are gone.
Short-term leases make it easier for those who only stay put for a few months at a time.
There are even fully-furnished short-term housing options aimed specifically at traveling business people.
Some people will say if you are renting, you are just throwing away your money for nothing tangible in return.
However, keep in mind that if you are a renter, you save yourself many expenses including paying property taxes and paying for repairs and home maintenance.
You also free up your money for other purposes that may be more of a priority.
Finally, you are free to move with little advanced notice which can be a benefit in the case of job loss or lifestyle changes such as marriage or the birth of a child.
If you like a change of pace – or your lifestyle demands it – you can even try renting from companies that manage multiple communities, where there is usually lease leniency if you move and stay with one of their properties.
Insurance & Upkeep Is Someone Else’s Headache
This could be the #1 reason people prefer to rent.
If an appliance breaks, call the landlord (or the management company)
If the paint is peeling, call the landlord.
If you need pest control, call the landlord.
No more DIY repairs, lawn care, or anything else that you hate doing around the house!
When it comes to dealing with insurance (like bundling with home or auto insurance agencies), it’s even better.
All you need is renter’s insurance–and you really should get a policy to save your emergency fund dollars for more pressing things.
No homeowners, no flood, windstorm, liability, or any other kind of insurance.
And it’s so much cheaper and easier to obtain.
Especially in the regions where weather creates tons of damage and makes it either difficult or very expensive to get a policy.
Wrapping Up
Don’t believe those who tell you homeownership is the only way to go.
There is a definite case for renting.
You just need to decide what is best for you and be willing to reevaluate your decision every few years.
In time, you may find that owning a home makes the most financial sense.
Until then, renting can be a great way to keep your options open without committing a large portion of your money or time (and may keep your emergency preparedness plan a lot simpler!).
Just remember, you need to do what is right for you, not what anyone else says you “should be” doing.
Your Turn
What’s your take on the buy vs. rent debate? Are you in the “only buy” or “only rent” camp? Or, are you pragmatic–like me–and think it only matters what works for you at a given time?
I’ve been renting for a long time now but I do feel the pressure to be buying a home soon. It just seems what people are supposed to do. Around here though homes are just too expensive and my job security is pretty lousy. So it will probably still be some time until I make that move. I do feel like I am throwing away money by paying rent instead of a mortgage.
Never do it if you aren’t 100% sure that it’s right. That is the one thing I hate above all else when it comes to money–people tossing out blanket judgments/rules just like this. You’ll be throwing away even more money if you get into a home that you eventually can’t keep up with so you’re probably better of where you are for now until you can line everything up for home ownership.
I’ve done both, and personally, I don’t care if I ever own another home. I talked myself into the “throwing money away” argument when I purchased my former house, but you know what? Renting is giving me a roof over my head. I’m pretty sure that’s worth it. I pay for food, and there’s nothing left of it after I’m finished, yet no one says I’m throwing money away. Why? Because it meets a need at the time.
Maybe my perspective is different because I’ve already owned a home in the past. But I really have no plans to do so again. Not saying I won’t – it’s just not one of my goals.
Here is where I take the “ending up with nothing” argument: how is ok to rent a home but not a car? To me they are exactly the same thing–with a home you leave the lease with nothing and have to fine a new place to live and with a car you turn t in at the end of a lease and have to find a new one to drive. The situations are parallel, yet people continually argue for homes and against cars.
I’ve seen the opposite where some argue that renting is the only way to go and that owning a house is silly. I immediately throw those opinions out the window, not because I agree/disagree, but because I don’t think there is a one-size-fits-all approach. The fact is that every situation is unique and should be weighed by the individual involved. There are certainly things that should be looked at that apply to everybody, but the way those things fall out (and the priority that each will give the items) can spell different outcomes to different people.
Absolutely. Anyone who takes a hardline stance for/against either option with no regard to alternatives is kind of an ass to me. There are so many different causes/reasons why either situation would be the best choice for a particular person/family. Some people are just so full of themselves that their ways and ideas can’t be challenged. Or they are just blind to other way of doing things due to their upbringing or past experiences. Whatever the case, there is never a right or wrong in this argument.
I’ve got a very compelling case for renting. The difference between renting and buying the median property in town is huge.
Rent–> $1800 / month
Buy–> $3400 (2500 mortgage + 900 taxes)
Also this 750k home requires a 150k down payment. By investing this money, i earn enough money to pay half of rent.
I could buy a cheaper home elsewhere, but the math still favors renting.
Sfi
When you have solid evidence such as that to support your decision, it really hard to make a rational case against renting. Sometimes it can be a personal preference, but it would be kind of crazy to choose to pay almost double in your case!
In some situations you are right on. In my case, I bought a condo and spend less per month than I did in the apartment. If I had moved to a more expensive home, though, the economics would have been totally different.
Right now, I’d say I’m pretty much even as far as what I’m paying to own as I would to rent in a similar place. I think people oversimplify the equation too much. It’s not simply a matter of low rates and depressed prices, it also has to do with outside factors, stage of life, future plans, and the lack of “creative financing” as well. Some people just look at it with blinders on rather than seeing the whole picture.
I think both are good options, but it really depends on the person. I can’t afford to buy a home and I can’t afford to rent. I’m going to build a home by doing it in stages.
Hopefully it all goes according to plan for you Danielle!
I am renting now, as I don’t want to settle down here. If I get a better opportunity I may move. While renting I am also saving aside money for buying first home with 100% down payment.
You could always buy up here in Broward!
I think every situation is unique, and while there are be some overriding principles we need to keep in mind, it’s not always a slam dunk to choose buying over renting. It may have worked out that way in the past, but not now. Somebody who bought a home 5 years ago and saw his or her property’s market value crash by 1/3 or more might be wishing they rented instead!
Right now, it might seem like a good time to buy for first time buyers, with prices lower and interest rates low. However, if a person might move in a year or two, it would make little sense to buy. Just as an example of how we need to tailor our decisions to our own situation.
Your first line is 100% accurate.
Everyone has to do what’s best for them and forget about what others say they “should be doing”. People have a tendency to take their own perspective and project it onto others even if it’s a ridiculous comparison.
Reassuring to hear, as I am considering renting a slightly pricier property right now and could really not afford to buy a property.
Wise words from squirrelers too.
There are a lot of people who simply don’t understand the process. They think that if you can afford a certain level of rent, then you should be able to afford a mortgage of the same payment. What they don’t realize is that not everyone has the 20% down payment available, or the ability to set aside money for the tax bill. You just have to do what you can work with.
Renter 4 lyf! Okay, I’m not sure that I am, but I’m loving renting right now. Just about to move out to Portland, Oregon for a few months, maybe more. There’s no way I’d be doing that if I owned a home.
Of course there will always be reasons that buying makes sense that aren’t purely financial. Because of that, I’d say those are the things that really matter, not simply what the numbers say.
That’s your lifestyle now, but it may change if you decide to have kids later on in life. Then it may be best to purchase a house with a yard, or whatever. But for now, it works for you, especially having quit your job and the move (whenever it occurs). But you’re right in that the financial reasons aren’t the only considerations in these situations. Of course, the ultimate decision comes down to what fits your lifestyle, and you’ve found it for now!
What about the fact that the amount I pay for my mortgage will be a lot less than what rent is in 10 years? Example: my mortgage on my home I have had for 17 years is 1200mo. (Would have been less if I hadnt refied and taken out 40k 5 years ago). Houses like mine rent for at least 1400mo now and in 10 years I imagine will rent for 1900 or more. Rents go up mortgage payments dont as much (depending on taxes and homeowners and the like). Am I off base in this thinking?
You are forgetting about 2 important things Suzanne:
1–Not everyone can come up with the required down payment to purchase a home. There are no more “no doc” “no income verification” 125% LTV mortgages any more. The 20% down payment is back in vogue after all of the creative financing screwed the market up.
2–You cannot predict the future–How do you know what the housing situation will be in 10 years? Where will interest rates be in that period? Will the demand in your area be what it currently is for rentals (which will drive the rent prices lower)? Will there still be a deduction for mortgage interest and/or real estate taxes? What will your family or job situation be? All of those things are important factors in your example.
For the here and now, it is still a perfectly reasonable for people to choose renting over purchasing a home. In your situation, it may be better to own. For many others, renting provides the freedom and mobility that purchasing doesn’t.
While I would favor home ownership once a person gets established in their career and with their family situation,with inflation low and home prices seemingly staying low for the next few years, there would not seem to be a need to rush into purchasing a home. Renting allows a person to conserve funds and get a feel for the neighborhood and community without making a long term commitment.
Everyone’s situation, resources, needs are different and must be evaluated individually.
Totally agree! In today’s job market, it’s important to be able to move for a job. Moving is never easy, but it’s tons easier if you’ve been renting! Also renting tends to keep you from accumulating too much junk–a big plus in my opinion. At a house people tend to fill up every nook and cranny with stuff. And when that’s full, they build a shed to house more stuff. We’re drowning in stuff!
I am in a situation where my monthly payment is considerably less than what I would pay to rent, but I still intent on selling my home in early 2013 (if possible). I should walk with about $25-$30k in cash from the sale, but I probably put in $20k into the home.
I want flexibility and sadly I will end up paying for it. I’ll most likely just downgrade to a much crappier apartment to keep the same payment, but remain very flexible.
W rented for 4 years before getting a home. Our driving force was privacy – we wanted to control who lived close to us. However, I had an aunt that moved from her homestead to a rental and rented for decades. She did not want the yard care, maintenance and upkeep. She loved renting.