This is a point that's been made several times on this blog:Time and again I hear people (some of them very close to me) refer to renting a house as a waste of money. As I previously mentioned, I don't share this opinion. Today we renewed our lease on our house for the fifth year. Yes, we have been renting our house from the same elderly couple for the past four years. Happily our rent has remained unchanged for the next year, and has increased just 10% since we started renting the house. According to Rentometer our rent is well below average for our zip code. Here are the benefits we are getting from renting vs. buying:Read the whole thing.Far from being a waste of money, if you are a disciplined and diligent investor who does not need someone to force you to save money in the form of a mortgage, renting is actually a way of making money.
- Flexibility - renting allows us to get up and leave at any time.
- No Headaches - if something goes wrong with the house, our cost is zero.
- Free Money - quite the opposite of being a waste of money, renting is a low cost financing option that allows me to commit our portfolio to a historically superior investment: the stock market.
Get Rich Slowly has more thoughts on Renting vs. Buying: The Realities of Home-Ownership.For most people buying a home will result in their largest monthly bill (by far), and because they believe that it will bring them wealth or that they are “throwing away their money” if they rent, they often take on a much larger home debt than a prudent budget would allow. It is a real shame when people are driven to get into the housing market because of misplaced notions of imagined financial benefits.Read all of this too.
Renting has worked out well for me over the years:
By renting, I've been able to keep my housing expenses to a fraction of what they would have been had I owned and had significantly more free time than I would have had otherwise. This has allowed me to contribute more money to charitable causes I care about, invest significant amounts into my 401k early in my career, have enough disposable income to travel to all 7 continents and all 50 states, and save up enough money to come back to school to work on my PhD and JD (I am blessed enough to stay debt-free so far).See all of my posts on renting vs. buying.
Here are some additional resources on this topic (via Get Rich Slowly):
- Wall Street Journal: Your Home Isn’t the Nest Egg That You May Think It Is
- New York Times: A Word of Advice During a Housing Slump: Rent
- New York Times: Is it better to buy or rent? (graphical calculator)
- The Motley Fool: The Worst Investment Ever
- SmartMoney.com: Renting Makes More Financial Sense Than Homeownership
- CNN Money: Stocks vs. Real Estate
- Priced Out Forever: Renting vs. Purchasing
1 comment:
As they say, different strokes...
The biggest problem with most of these sites advocating one way or another is the assumption that one size fits all.
For some, renting is a better option. For others, home ownership will offer greater returns, either personal or financial, or both.
There are so many factors, and everyone's situation is unique. For instance, for some rent is cheaper than a mortgage payment; for others rent is on par or even higher than a mortgage payment. So it cannot be said that rent is always a lower cost option.
Then there are the noneconomic factors. For instance, if someone does rent at significantly less, they often have less space to enjoy, and for some that may be a sacrifice. Many people enjoy the pride of ownership, and like the idea of having a home to take care of. For others, renting, regardless of cost, can afford more flexibility to make life changes.
There is one huge benefit of a high percentage of home ownership: it forms the foundation of the concept of private property for most people. I honestly believe that our society would be vastly different today if we had a renter culture, versus a home owner one, and that such a society would not have the same degree of zealousness towards protecting private property rights. Of course private property is not necessarily real estate, but again, the concept of owning your own home has been the foundation for most people of owning their own belongings and indeed, taking ownership of their lives. It does have huge symbolic value in our culture, and that is something that can be overlooked in a purely economic analysis.
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