People will say that renting is like throwing money away. Whenever you talk to a relative about moving out, they tell you how you need to buy. You constantly are reminded that buying is better than renting and that renting is tossing money out the window.
That’s incorrect. You aren’t throwing money away if you have a shelter. You’re not throwing money away by renting. You’re paying for a place to live.
Renting can be better than owning. I’m going to show you why…
Renting vs owning is a huge debate when it comes to deciding where to live as a young professional.
This is also usually the most common topic among my friends that are in their mid-20s and working. Everyone wants to move out. It’s just difficult to figure out where to go next. We all debate between renting and owning a place.
As time goes on I continue to do more research and look into more options when it comes to real estate. I’m not a fan of just accepting conventional advice. I love to challenge things and to look for alternatives. I also love to share the results with you guys on here.
Why’s renting a place a better option in your 20s? How can home ownership set you back?
No hidden costs or maintenance fees.
When you rent you pay for your flat monthly fee and that’s all that you usually have to worry about. You might have to pay for hydro or anything else that you choose to have. There are no other hidden costs though. You don’t have to worry about any of the following expenses:
- Condo fees.
- New furnace.
- Property taxes.
- Random repairs.
- Cheaper insurance with renting.
Even though these fees are usually factored in to the price of rent, there’s nothing hidden from you. You know exactly what you have to pay for every single month. I don’t know about you, but I hate hidden costs.
Renting a home offers you flexibility.
When you rent, you’re emotionally and financially flexible. You may have to wait for your lease to run out, but you can get out pretty easily. When you a buy a home, you just can’t get rid of it easily. You have to look around for a real estate agent, have the house appraised, fix it up, make it look nice, and then put it on the market hoping to get the money that you asked for. This whole process can take a long time and it will definitely not be cheap.
As a renter, you can get up and leave to wherever you want to go next. If you want to travel the world, you just wait for your lease to expire and you take off. You’re not emotionally or financially tied down to anything.
You don’t feel stuck with renting.
Renting allows you to live in a better place.
Renting can allow you to live in a place that you couldn’t normally afford to buy. You can usually afford to rent a much nicer place than you could ever afford to buy. This allows you to enjoy some luxury in your 20s before you settle down and figure out if you really want to buy a place.
When you rent, you know how much you’re going to be spending on a monthly basis. You can pay yourself first and budget out your money based on this information. You don’t have to worry about anything breaking down in the home, property taxes increasing, or any other random expense that usually happens when you buy a place.
Uncertain future plans.
If you don’t know where you’re going to end up work and life wise in 6-12 months, it’s not really worth going through the extensive process of trying to buy a home. You should buy a new place when you’re ready to settle down and stay in a certain community for an extended period of time. When your future is uncertain you don’t want to commit to a set location. It could really mess up your plans.
Looking to save some money.
If you still need to save up more money before you’re ready to own your own place, renting is the ideal solution. You can rent out a cheap little pad with a few friends where you pay a few hundred bucks per month for rent and save the rest towards your home down-payment. The benefit of renting is this situation is that you give yourself some more time to save money. It’s not worth trying to buy a home where you’re financially unprepared.
Plans to travel.
If you want to do some long term traveling in the near future you’re going to want to hold off on buying a place for now. Real estate should be about your unique priorities in life. Some of us will want to settle down and get married right after college. This is when buying a home can be a good idea. On the other hand, if you’re like me and you want to travel the world, you might want to stay at home or rent for now. There’s no one-size-fits-all when it comes to real estate, regardless of what experts try to tell us. If you want to travel, then do it. You don’t HAVE to buy a home if you don’t want to.
You just need a place to stay.
Not everyone is fortunate enough to have a supportive family that will let them stay at home until they’re 35 years old. If you just need a place to stay then renting will provide you with the shelter that you need. Buying a home shouldn’t be done out of necessity. You should be in the market for a home when you’re financially prepared, not when you simply need somewhere to stay.
Renting is the ideal option if you simply want flexibility with your finances for now…
If you’re looking for flexibility, then renting is the right option for you. Once you tie up a significant portion of your savings in a home, you’ll eliminate a lot of flexibility from your life. Flexibility is highly valuable as a 20-something. You never know when you can land a job offer in a different part of the country. You also never know when you can fall in love with someone in a different. You really never know what can happen from the years that you graduate college until you turn 30.
What did the readers have to say about renting a home compared to buying a place?
The first time that I wrote about how renting is better than owning, I received all kinds of interesting comments. Here are a few that stuck out to me…
Crystal wrote in with:
“Home ownership is only a great deal in states with inexpensive property and only if you plan to stay for more than 5 years. Luckily, Mr. BFS and I fit both criteria and have a $504 a month mortgage (we overpay to $900 every month), and we’ll own our home in 6 more years (I’ll be 33 or 34). We bought it 4 years ago.
We bought our 1750 sq.ft. home for $114,000 in 2007 through WAMU. We put down 20% and got a 5.375% interest rate for 15 years on the remaining $91,200, so our payments were $740, but we paid $900. Then we got handed to Chase and they offered us a zero-cost refinancing this year. We refinanced to another 15 years at 4.5%, so our new mortgage is $504 but we still pay $900. Ta-da!
I know we are lucky – we found a FANTASTIC foreclosure (built in 2004 and was in great shape) in a very nice area in a very cheap-to-own-property state (Texas).”
My friend from the No Debt MBA blog wrote:
“I feel like renting is often unfairly bashed as a ‘waste of money’ when really it can be a very smart financial decision in an over priced real estate market or if you move frequently. The transaction costs associated with buying and selling a home can be quite high and with a mortgage you pay very little to principal during your first couple years of ownership; most of the money goes to interest.”
Edward chimed in with:
“I’m reading The Total Money Makeover by Dave Ramsey right now and I feel he gets caught in the same trap regarding cars. In both cases, I feel that looking at appreciation or depreciation is looking at it like too much of a financial investment and not a life investment. If you are looking at buying as a way of making money, your focused on the wrong thing.
In the case of a car, I paid $2000 for my Camry 6 years ago. It is now worth $500. So I’ve “lost” 75% of the value or $1500 according to depreciation. But I haven’t lost anything of the sort. The car will still cost more than $500 (or probably even $2000) to replace, but I plan on driving it all the way to 300,000 miles at which the “value” will be just a few dollars. I don’t care about what the intermediate value ever is because all I care about is it will be worthless when I’m done with it in a few years. Actually, I don’t even care that it will be worthless, just that it will be just about dead.
The same holds true for real estate. When I buy, I don’t care what the value will be immediately after or in a few years. Because when I do buy, it will be the last place I ever plan on living.”
As you can tell from my argument here, it can really benefit you to rent out a place instead of jumping right into home ownership. I don’t want you to think that renting is throwing money away.