There’s a good reason why home ownership is one of the most common goals in people’s lives. It’s a way to build real wealth as you pay down your mortgage over time. It means you’ve finally arrived in the world when you sign on the dotted line and take possession of a place of your own.
Your home is your castle, a place where you hang your hat and memories are made. Also, no one ever dreams of being a renter.
As great as ownership is, it doesn’t always make financial sense to purchase a home. As hard as it is to believe, there are some times when renting is the better option.
Which best describes the benefits of renting a home? Here are six instances when renting makes better financial sense than buying:
1. You Don’t Plan on Living in an Area Very Long
There are a lot of expenses involved in buying and selling a home: closing costs, inspections, repairs, realtor fees, and others. The realtor fee alone is usually six percent when selling. This can end up being a lot of money. The realtor fee on a $200,000 home, for example, is $12,000. Ouch!
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If you know you will only be living in a certain place for a short period of time – like two years or less – then buying doesn’t make financial sense. Just remember that it sometimes takes months for a home to sell, and you don’t want to keep your money tied up in a place when you’re not going to be there for very long.
2. You Need a Lot of Flexibility
If you move to an unfamiliar place and make a quick decision to buy, you might end up with some regrets. For example, if you move from your parent’s house in Denver, Colorado to Austin, Texas, then renting an affordable Austin apartment gives you the ability to scope your new city out without making any long-term commitments.
Let’s say you get a job transfer to a new city you’ve never even been to, and you need a place to live ASAP. If you’re not familiar with a new location, it might make sense to rent – at least for the first year – so you can get a feel for the place and figure out which neighborhood you really want to live in.
3. You Don’t Want to Fix Toilets
Things break in homes. The plumbing occasionally needs repairing, shingles may need to be replaced after a bad storm, foundations crack, and appliances don’t last forever. Taking care of these things requires money, time, skill, and patience – and it may require a lot more money if you prefer to hire people to take care of the repairs for you.
Landlords typically take care of all maintenance issues – unless specifically mentioned in the rental contract. As a renter, you have the luxury of making a phone call to your landlord to set the repair process in motion. This is something that most homeowners could only dream of.
4. You Haven’t Saved for a Down Payment
It’s hard to secure a loan these days without a down payment. And it can sometimes take a while to build up your savings. What do you do in the meantime? You rent.
If you shop around, you should be able to find a decent place to rent that will allow you to save some money each month. It may even be worth it to live an extra 20 or 30 minutes from your job if it allows you to save for a down payment on a home.
5. You Lack Job Security
Purchasing a home and putting down roots in a particular area may not be the best idea if you are unsure of your current work situation. Maybe the company you work for recently laid off a bunch of people – that’s never a good sign. Or perhaps your boss is a jerk and you’re not sure how much longer you can take it.
Losing a major source of income when you have a mortgage payment to make can be devastating. It means you’re stuck in a particular area until you can either sell your home or land a new job. As a renter, however, you have the freedom to pick up and move to a new location in a pinch.
6. You Live in a Big City
Home prices in the best cities for millennials are often very high. In some cities, home prices are simply out of the reach of most people – like in San Francisco or Silicon Valley.
If you don’t have a spare $500k lying around to buy a home in an expensive city but you need to live there for work, you may still be able to afford to rent a place, even if it’s a simple studio or loft apartment.
Before You Buy
Always take the time to make sure buying makes sense before you sign on the dotted line and commit to a lengthy mortgage. Depending on your situation, you may actually come out ahead by renting instead.
If you want to save money on housing (typically your biggest expense), check out how to live rent free and the fundamentals of house hacking.