Are You Wasting Your Money When Renting?
Since the financial crisis of 2008, more and more Americans are buying homes. As the market recovers and homes become more affordable, this seems like a great trend at first glance. However, out of these growing trends towards buying property, renters often hear that they’re “throwing money away.”
Are renters really throwing money away when they choose to sign a lease instead of a mortgage agreement? This argument has been used time and time again when it comes to making the decision to buy a home or continue renting. Because of this mindset, there’s been an increase in pressure, especially on young people, to buy a home quickly to avoid throwing money away.
In reality, it’s not quite that black and white. There are, in fact, many situations where it makes more financial sense to continue renting than to buy. While purchasing a home might be a great decision that lowers the overall monthly expense, that doesn’t mean it isn’t also a huge financial commitment that’s not right for everyone. In this guide we’ll answer this big question once and for all: are you wasting your money when renting?
Is Buying or Renting More Affordable?
One of the primary arguments for buying over renting is that it’s more affordable. It’s true that monthly rent payments are on average notoriously higher than mortgage payments. The average cost nationally for a 1 bedroom rental is $946, with some states boasting prices as high as 2,016 (New York City, of course). At the same time, the average mortgage payment for a home in America is $1,030, and your money will get you a much larger space.
Using that logic, it makes more sense financially to buy a home than rent. Yet, that logic isn’t actually sound. The mortgage payment on its own isn’t an accurate way to estimate costs. Homeowners experience many “hidden” costs like property taxes, repairs, HOA fees, and more. As a renter, you aren’t likely to encounter nearly as many add-on costs.
According to Nerdwallet, in all 50 states and Washington, D.C, it’s still less expensive to rent than to own a home. While it’s possible to find a great deal on a property or to live in a booming housing market, this isn’t the case in most cities. Owning a home is expensive. Maintenance, repairs, and taxes cost an arm and a leg and require a lot of ongoing work.
The Benefits of Renting
Aside from the lower expense of renting, there are a lot of other perks that make it so worthwhile for many people today. These are both financial and non-financial benefits, and they are what makes renting such an ideal housing solution for most modern workers today.
- Flexibility – When you rent, you’re free to move whenever you wish. Most leases are only a year long, and that means you can just pick up and move if you don’t like where you are.
- No Maintenance – The landlord is generally responsible for most expensive, ongoing maintenance. Having someone to call when the refrigerator breaks is a godsend!
- No Risk – When you own a home, you risk losing home value over time if the market fails. This isn’t true when renting. You’re free to move to a new market without worrying about your assets.
- Amenities – Luxurious, extra amenities are increasingly common in rental communities. Better yet, you don’t have to pay to install or maintain these benefits.
- No Down Payment – Finally, you don’t need to save a percentage of the cost of a home in order to move in. While you will likely need to pay a deposit, these rarely are more than a month’s rent.
As you can see, there’s a long list of reasons why renting isn’t a waste of money. Not only do you have the freedom to choose a property that’s right for you, but you don’t have to plan for any unexpected fees or maintenance costs.
Owning a home is a great goal, and one many Americans still have. That being said, unless you plan to stay in a single place for a long time or have the funds for a large down payment, it’s worth renting in the meantime. Don’t believe the hype about how renting isn’t a smart financial choice. It’s a much more secure, safe investment than it sounds!