Renting can have its advantages
By Len Rhodes
Sunday, April 15, 2018
The American dream is to own your own home. Renting is often viewed only as a necessary step to that end, and the quicker you can achieve that dream the better.
The knock against renting seems to stem mostly from the premise that you are throwing your money away when you rent. When you rent, you do not build equity since you don’t own your place of residence. You are simply borrowing someone else’s property for a set period for a set fee.
At the end of a lease you simply turn in the keys and you’re done. In addition, landlords can place various terms and restrictions on the use of the property, such as how many pets you may have, or even which hours you are permitted to do your laundry.
On the other hand, owning your home is not just a place to live, but an investment. Again, renting is just throwing money away.
Not so fast. For the most part, houses appreciate just a little more than the rate of inflation. Other investment choices align better with your investment goals than owning a home.
While a large portion of wealth for many Americans is the equity in their homes, that does not mean they are building their wealth the right way. Your home is the place where you live, and should only be considered an investment as a secondary motivation.
I argue that there are many advantages to renting over owning. The first is mobility. Mobility can be important if you are looking to move for a new job where timing is important. When your lease is up, you can leave. If you want to move before your lease ends, you are obligated only for the remainder of your commitment. Most leases allow both the landlord and the renter to break the lease early with appropriate notice.
This flexibility is important if you are early in your career. And it’s something you lose with homeownership. If you own your home, you are stuck looking for jobs that are geographically close to your home. Otherwise, you must sell your house, with all the inconvenience and cost that this entails. Flexibility and mobility are the keys to successfully managing your career early on. Renting provides you with both.
Owning a home comes with a lot of maintenance. Since you are not required to maintain the property as a renter, you have more free time and no unexpected costs. Except for anything you damage or destroy, the landlord is responsible for maintenance and repair costs.
When you own your own home, you bear the expense of a new refrigerator or dishwasher. And those are cheap compared with replacing an old roof. In addition, the property owner typically is responsible for things such as landscaping, cutting the grass, pressure-washing the exterior, and painting the handrails. These are all things that may not cost a lot out of pocket but take up your valuable time to relax or put in more time at work to earn that next promotion.
Buying a home is expensive. If you have very little cash or wish to preserve what you do have, the low initial and carrying costs for renting can be a real plus. Typically, all you need is the security deposit and first month’s rent. If the property is properly maintained, you get the security deposit back when you leave.
On the other hand, purchasing a home can send a shockwave through your finances unless you are well prepared. There are an endless number of hefty fees required to buy a home, including sales commissions, attorney’s fees, registration fees, court costs, and taxes, just to name a few. In addition, carrying a home each month is expensive. Home owners pay a variety of monthly bills in addition to the mortgage. Monthly expenses such as garbage removal, heat, electricity, gas, or unexpected emergencies can add up and may also fluctuate from month to month. When you rent, many of these costs are covered by the landlord. Your monthly expenses are typically consistent and relatively low.
As you can see, home ownership comes with all kinds of expenses in addition to the monthly mortgage that many people do not factor into the rent or buy decision. Renting allows you to put the money you are not using on home ownership into savings or investment accounts. That way you will have money for a nice vacation, for retirement, or even to buy a home when you are really ready to do so. You are not throwing your money away after all when you rent.
Len Rhodes is the director of technology, information and operations in the College of Business at East Carolina University.