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 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.
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.
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.
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.
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?