Do you ever feel like paying rent is a waste of money? I can understand why. These days, with so many advertisements talking about “historically low interest rates”, and telling you that paying rent is the same as “flushing your money down the drain”, it’s easy to feel pressured into buying a home.
But, before you go making the biggest financial commitment of your life, you might be surprised to hear that renting isn’t as bad as it’s made out to be. In fact, it might actually be the smartest financial decision you can make at this point in your life. So, before we go any further, I want to address the question that led you to this article in the first place: is renting a waste of money?
No, renting is not a waste of money. First of all, as a renter, you are not responsible for most of the major (and often unexpected) expenses that come with homeownership. Secondly, renting is more flexible than owning a home. So, if you ever need to move, it is significantly easier to do so.
To put it simply, if you are unprepared for the long-term commitment and financial responsibilities of homeownership, then renting is actually a wise decision; not a waste of money.
Now, I realize this probably goes against the grain of what you’ve heard in the past. And I wouldn’t blame you if you needed just a little more information. That’s why, for the rest of this article, I am going to cover a number of reasons why renting isn’t a waste of money.
Let’s dive in!
5 Reasons Why Renting Is Not A Waste Of Money
When it comes to your financial situation, you are the one that has to live with your decisions. So, no matter what other people try to tell you to do, it’s in your best interest to do your own research so that you can make the best decision possible.
And while there is all sorts of information out there about buying a home, the information on the benefits of renting vs. buying is seriously lacking. So, in order to balance the scale a bit, here are 5 reasons why renting is not a waste of money.
1. It’s More Affordable
To start, when somebody tells you that renting a home is more expensive than buying a home, they are not telling you the full story. Sure, when you only compare the cost of a mortgage to the cost of rent, the numbers might make you think that buying a place of your own is the cheaper option. However, there are all sorts of things that this comparison does not take into account.
For example, when you buy a home, you will run into a number of other costs. To name just a few:
- Minor home repairs
- Private Mortgage Insurance (if your down payment is less than 20%)
- Closing costs
- Property taxes
- Homeowner’s insurance
- New furniture and decorations
- Upgrades and remodels
Seriously, some of these expenses can cost thousands, or even tens of thousands of dollars.
On the other hand, when renting, what you see is what you get. Nearly all of the expenses you will have to pay up front will be laid out in your lease. At most, in addition to your rent, renter’s insurance and security deposit, you will end up buying furniture, decorations, and small, comparatively inexpensive, living supplies like cookware, towels and a plunger.
Now, these things might add up to a few hundred, or maybe even a couple thousand dollars. But trust me, that pales in comparison to the expenses of buying a home.
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2. Renting Is Flexible
If your job requires you to move every few years, then renting is a great option. Why? Because in most cases, you will only be locked into a lease for a year or two. Plus, in most cases, if you ever need to terminate your lease early, you will just have to pay an early move-out penalty, and you are good to go.
Meanwhile, when you own a home, the process of moving is much more difficult and time consuming. First, you will have to get your home ready to sell. Then, you will need to hire a good real estate agent to list it, and get the word out. Then, you will have to go through the process of appraisals, inspections, negotiations, and closing. Sure, you may make a bit of money on the sale, but if flexibility is a necessity in your life, renting is a phenomenal option.
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3. Access To Amenities
One of the best, and most overlooked aspects of renting, is the amenities that many places give you access to. In particular, if you are looking to rent an apartment, you may get access to a gym, pool, community center, community events, clubhouse, and much more. And the best part is, in most cases, these things don’t cost you any extra.
On the flip side, if you decide to buy a place of your own, all of these expenses will be in addition to your mortgage. At the very least, you will have to pay for them through your HOA dues. And those can get pretty pricey!
4. Lower Risk
I don’t think it’s any secret that when you take on a mortgage, you are bringing some financial risk into your life.
As Dave Ramsey says, “100% of foreclosures happen on homes with a mortgage.”
Now, let me be clear, I’m not saying that buying a house means that you are going to go through a foreclosure. All I’m saying is that by taking on a mortgage, you are adding a large amount of debt to your life. And with debt, comes financial complexity and risk.
So, if the idea of jumping into hundreds of thousands of dollars worth of debt makes you uncomfortable, then you should consider renting. Since renting doesn’t require you to take on debt, it is much less risky.
Oh, and by the way, it doesn’t make you weird if you choose to rent in order to avoid a mortgage. In fact, my wife and I are renting until we can pay for a house in cash a few years from now. (Then again, we are a little weird, so…) It’s definitely a different path than most people take, but since we believe in living a completely debt-free lifestyle, renting is anything but a waste of money for us.
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5. Less Stress
In addition to the fact that renting carries much less risk than buying, it also comes with a lot less stress. For instance, when you own a home, you are responsible for all the upkeep and financial responsibility that comes with it. So, if anything breaks, from a light bulb to the furnace, then you are the one that has to get it fixed.
That is a lot of stress and responsibility to take on. And, if you are not quite ready for all that, then it might be in your best interest to rent until you are.
Think about it like this, if you are renting a house and the furnace goes out, all you have to do is call the landlord, and they will send somebody out to fix or replace it. At worst, you have to stay home and wait for the furnace repairman to show up. But at least you didn’t have to pay for it!
As a homeowner, you are responsible for everything that happens to your property. And that can be pretty stressful.
When Does It Make Sense To Buy Instead Of Rent?
Ok, so at this point we’ve looked at a number of reasons why it makes sense to rent instead of buy. But renting isn’t always the best option. So, before you completely shy away from homeownership, allow me to answer the question, when is it ok to buy instead of rent?
In short, if you can pay for a house in cash, then it makes more sense to buy than it does to rent. Since renting and paying a mortgage both require you to make monthly payments, buying a home outright will free up your cash flow, and improve your financial situation.
That said, if you don’t have the patience to save up enough to buy a home outright, it is generally ok to purchase a home as long as you can put at least 20% down. Though, in order to make the best financial decision possible, you should still weigh all your options carefully.
Don’t believe everything you hear. Just because a bunch or mortgage companies tell you that renting is a waste of money, doesn’t mean you should believe them. In reality, renting may be a more beneficial option for your financial situation.
Just be sure to do your research, and be completely honest with yourself.
I’ll finish with this, renting is not a permanent situation. So, if you are thinking about buying a home, but you are feeling unsettled about it, don’t be afraid to rent a little while longer. It is better to take your time and make a wise decision, than it is to ignore your gut feeling, and rush into buying a home before you’re actually ready.