To Rent or Not To Rent
Eileen St. Pierre, The Everyday Financial Planner
My husband and I have owned three homes in our 20-year marriage, but we have been renting houses since 2001. It’s not that we don’t want to buy a house. Rather, renting just fits our lifestyle at the moment. At first, most of our family and friends thought we were crazy as housing prices went through the roof. Then the housing market collapsed in 2008 and their attitude suddenly changed. We have been told by generations before us that owning a home is part of the American dream yet many have started to question this in the last five years. So for those of you who are trying to decide whether to rent or not to rent, here’s my take on it.
Advantages of Renting
- Your rent payment is just that – you don’t have to worry about paying for maintenance, property taxes, and homeowner’s insurance. Although it is a good idea to have renter’s insurance to cover the replacement cost of your personal property.
- It’s great for people who travel for their jobs. If you can find a property where they will mow the lawn for you and secure your mail, there is not as much to worry about while you are gone. Take it from me, traveling for your job is stressful enough.
- If you have to move for your job, it’s a lot cheaper to get out of a rental agreement than to sell your house (unless you get really, really lucky). If you use a real estate broker to sell your house, you will have to pay a commission, usually 6% (on a $200,000 sale, that’s $12,000). If your house does not sell before your new job starts, you will have two housing payments until it does.
- There is less responsibility when you rent. Let’s face it – some people just cannot handle being homeowners. It’s hard enough to get them to take the trash out once a week.
Disadvantages of Renting
- Homeowners who live around rental properties will tell you that most renters do not have the pride of ownership. Since my husband and I have been homeowners, we take care of our rental just like we did all of our other homes. But we are probably the exception, not the rule. We frequently find ourselves cursing neighbors who look like they are holding perpetual garage sales.
- You are not building equity. Equity is the difference between the market value of the home and your mortgage. Until 2008 rolled around, most people never realized you could have negative equity in your home. But as housing prices rebound and mortgages are paid down, homeowners’ equity positions should improve.
- When you rent, there is a trade-off when it comes to maintenance. While you should not have to pay for it, you may not have much control over when the maintenance is done.
- There is still a social stigma to renting in many communities. Renters may not be viewed as being part of the community.
Many investors prefer to put their money into real estate because it is tangible rather than financial assets like stocks. But despite all of the well-publicized downturns, buying stocks, reinvesting the dividends, and holding them for long periods of time has been shown to lead to much greater returns than investing in real estate. So when it comes to deciding whether to buy or rent a home, what’s most important is having peace of mind that at the end of each day you are where you want to be.
Visit my Basic Financial Management page for more information.