It’s Okay To Rent. Really, It Is.

Photo credit: © SignatureListings.com

For years you have been trained to think that home ownership is one of the best final decisions a person can make. You are 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, as there are drawbacks to owning a home. Sometimes you are a responsible adult when you choose NOT to own a home. There could be a variety of reasons to rent, not the least of which could be to save money and generate income to invest.

 

The decision whether you should own a home or rent should be weighed carefully. You need to consider your short-term, as well as the long-term needs .

 

Consider the following:

 

  1. Would you save money renting? In some markets, owning a home is cheaper than renting, but not often. Use a home loan calculator to estimate how much your monthly payments will be. Many people stop here, but there are many other costs you must factor in. You will also need to pay property tax, home insurance, and home repairs, not to mention having a sizeable down payment available. When you factor in all of the expenses, you may see that renting will save you quite a bit of money every month.
     
  2. What are your long-term financial goals? While many homes appreciate, that is not always a given. If you plan to make other investments, you may want to use the money you save from renting to buy investment property, for instance. Then, you will have a monthly mortgage, but the renters’ rent checks should cover the majority, if not all, of the mortgage, leaving you with very little out-of-pocket expenses and an investment that grows the longer you have it.
     
  3. Would you stay in a house for five years or more? Many experts recommend you do not buy a home if you will not stay there for five years or more. By the time you pay realtors’ 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. If there is a downturn in the property market from the time you buy to the time you sell, the problems are compounded.
     
  4. How secure is your job? Often couples take out a mortgage with high monthly payments and convince themselves they will be able to afford it, and they can, until one partner is laid off or quits. Whether you are single or a couple, consider the security of your job before buying a home. If you do lose your job and you are a renter, it is much easier to pack up and move where ever the job search takes you.
     
  5. How often do you travel? If you travel frequently, renting may be the better bet as you do not need to worry about home upkeep when you are gone such as watering the flowers and mowing the lawn. The same is true if you live in another location for part of the year. In this case, renting is just easier.

 

People will often argue 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 such as investing in real estate properties yourself. 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.

 

Don’t believe those who tell you home ownership 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. Just remember, you need to do what is right for you, not what anyone else says you “should be” doing.

 

What was the driving force behind your decision on housing? What would make you change your mind about your current living arrangements?

 

This article was featured as an Editor’s Pick in Totally Money Blog Carnival

 

About Eric J. Nisall

Former NY'er, accountant & business consultant, founder of GreenBridge Advisors. Blogging about personal financial, small business topics, and other fun topics at DollarVersity. Fan of the NHL and everything hockey! Follow me on Twitter, Facebook, and on Google+

  • http://www.modestmoney.com/ Modest Money

    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.

    • http://www.dollarversity.com Eric J. Nisall – DollarVersity

      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.

  • http://www.sooverthis.com Andrea @ SoOverDebt

    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.

    • http://www.dollarversity.com Eric J. Nisall – DollarVersity

      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.

  • Money Beagle

    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.

    • http://www.dollarversity.com Eric J. Nisall – DollarVersity

      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.

  • Http://www.sixfiginvestor.com

    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

    • http://www.dollarversity.com Eric J. Nisall – DollarVersity

      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!

  • http://www.narrowbridge.net Eric

    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.

    • http://www.dollarversity.com Eric J. Nisall – DollarVersity

      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.

  • Dannielle @ Odd Cents

    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.

    • http://www.dollarversity.com Eric J. Nisall – DollarVersity

      Hopefully it all goes according to plan for you Danielle!

  • SB @ FPR

    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.

    • http://www.dollarversity.com Eric J. Nisall – DollarVersity

      You could always buy up here in Broward!

  • http://twitter.com/squirrelers squirrelers

    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.

    • http://www.dollarversity.com Eric J. Nisall – DollarVersity

      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.

  • http://www.choose-your-accountant.co.uk Jon Smith

    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.

    • http://www.dollarversity.com Eric J. Nisall – DollarVersity

      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.

  • http://www.moneyspruce.com/ Jeffrey Trull

    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.

    • http://www.dollarversity.com Eric J. Nisall – DollarVersity

      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!

  • Suzanne in VA

    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?

    • http://www.dollarversity.com Eric J. Nisall – DollarVersity

      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.

  • http://www.facebook.com/paul.herman.940 Paul Herman

    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.

  • Maggie@SquarePennies

    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!

  • Drew @ EpicFinances.com

    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.

  • Marie at FamilyMoneyValues

    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.