When Is It Smarter To Rent, Instead Of Buying A Home?

I’ve got a huge reveal coming tomorrow, but for today let’s talk about buying property.  Owning a home is one of those standard expectations that goes along with being an adult.  We’re taught that renting is for college kids or people who can’t afford to buy a home.  Investing in real estate is the smarter, more grown-up thing to do.  

 

 

Buying a home is generally seen as a wise move, especially if the mortgage payments are lower per month than the cost of rent.  In addition, the property is yours after mortgage is paid off.  But, in some circumstances, buying may be a bad move.  What are the factors that you should consider?

 

 

 

Flexibility

 

One of the biggest cons to owning a home is the lack of flexibility.  A mortgage is an agreement to pay off a debt for the next 15, or even 30, years of your life.  You are tied to this one location with a mortgage that is often several hundred thousand dollars.  And moving to a new property is quite the process.  Even taking an extended vacation or mini-retirement means that you’re paying towards vacant space unless you’re able to find someone who will rent it from you.  If you’re someone who likes variety and may be moving again in the near future, you’re probably better off renting a place to live.  

 

 

Debt

 

As I mentioned above, a mortgage is a hefty chunk of debt which you have to live with for decades.  Many of us end up using our mortgage approval amount as the guideline for how much to pay for a new house.  The average mortgage is $150,000, which is not an amount to take lightly when it comes to assuming new debt.  Don’t forget that if you should stop making payments on your mortgage, you can face issues with foreclosure.  Anyone who is already struggling with debt should think carefully about purchasing a home.  Once the debts start to pile up, it can lead to unbearable financial pressure.

 

 

Extra Costs

 

Renting may very well be less expensive than buying a home.  Apart from mortgage payments, a homeowner has to pay for things like maintenance, repairs, interest, and taxes.   In addition, you’re probably going to pay a few thousand dollars in closing fees and may have to face regular HOA fees, if you use a Homeowners’ Association.  

 

 

Maintenance & Repairs

 

Making repairs isn’t only a financial issue but a question of time and energy.  As the owner, it is your responsibility to keep up with the maintenance projects.  A renter doesn’t have to worry about paying to fix random broken or inoperable things.  Renting a house means the landlord is in charge and it is their job to take care of any unexpected issues.  You may be able to handle maintenance and repairs on your own, if you’re a handy type of person, but there is still the cost of materials and your time.  Even if you can afford to outsource the work, it can still be a hassle to make the arrangements.  

 

 

Renovations 

 

Renting limits your option to make major changes to your residence.  Homeowners can easily get caught up in feeling the need to update their home, over and over again.  You might even get caught up in that horrible game of competing with your neighbors.  Major renovations come with big price tags, and they don’t necessarily increase the value of your property.  You may be better off renting if you’re someone who is obsessed with home makeover shows on television. 

 

 

Investment Options

 

Yes, real estate can serve as an investment.  After a while, you can even refinance to liquidate some of the equity value in your property.  However, the initial purchase usually comes with a sizable down payment.  In some circumstances, you might be better off investing that money in a way that will accrue interest over time.  

 

 

Housing Market

 

It’s almost been ten years since the Housing Crash of 2008.  Since then, the market has slowly got back on its feet, but the world’s economy is by no means out of the woods.  Most experts are predicting that there are hard times are on the horizon.  The UK, for example, has just increased interest rates for the first time since 2007.  Plus, the Trump administration and Brexit are causing financial uncertainty around the globe.  There are no guarantees when it comes to the future value of your home.

 

 

Tax Breaks

 

Property advocates will counter the previous point by saying there are promotions to help reduce the cost of ownership.  State and federal governments provide tax incentives to home buyers.  It may seem like a great deal, but these programs get complicated when you delve deeper.  This “11 Reasons Why I Never Want To Own A House Again” post explains how, for a $200,000 home, the rate of interest means you will currently pay $350,000.  That’s an extra $150,000, but the tax savings is only $40,000 over the course of an average mortgage.  What is a tax break actually worth, if it doesn’t save you money?

 

 

 

Don’t fall for the conventional advice that property is a foolproof investment.  There are many potential pitfalls.  When it comes to financial issues, we all need to make decisions based on our unique circumstances and plans for the future.  

5 Comments

  1. I’ve owned for the last 14 years. My first house I probably shouldn’t have owned. I was single, my work was less stable than I thought, and it was a stretch financially. When it came time to sell it, I couldn’t (it was 2007.) We’ve turned it into a rental, but I probably would have been better off renting a place at the time instead of buying.

    I’m in a different spot now. I have a family, and we want to be where we are for the foreseeable future. Hubby is a whiz at most maintenance, and my daughter’s school is very good. Now, it makes way more sense, but I wish I’d done a better job of recognizing my circumstances in 2003.
    Emily @ JohnJaneDoe recently posted…Credit Card Churning: Some Call It Clever, Others Say Too RiskyMy Profile

    1. Thanks for sharing, Emily. You provide a great example of why renting might be the better option in some circumstances. But you also deserve some credit for making a less-than-ideal decision work for you in the long run.

  2. I agree there are many pitfalls to home ownership, although we have been happy homeowners for almost 8 years now. I think a huge factor to consider is cost of housing in your area. While the cost of rent will be higher in areas where home prices are high, it may just not be feasible to save up a decent down payment if starter homes go for half a million in your area. We are fortunate to be in a low cost of living area. But sometimes when it’s time for repairs and maintenance, we miss our renting days!
    Kalie @ Pretend to Be Poor recently posted…Shopping Hack: Minimize Impulse Purchases with SubscriptionsMy Profile

    1. Good point, Kalie. We also (thankfully) live in a pretty low cost area. The down payments in other areas are astounding – it makes much more sense for most people to either rent or try to live somewhere else.

  3. I feel the life in UK like the USA is to work hard and buy a house. With the house prices as they are, I have been renting and have no intention of buying, I have calculated that I would have to pay more in mortgage payments than I do for renting and that is after paying a mortgage deposit over £100k.

    My kids are still in school so we will have to move around according to their schools. So renting gives us the flexibility.

    The only sense I see for myself regarding ownership is to move abroad and purchase a property at a substantially lower price.
    Leo Tat recently posted…23 Turmeric Curcumin Health Benefits and UsesMy Profile

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