Is Renting Really Throwing Money Away?

You don't build equity in the property, and you may not be able to put your personal stamp on the place. But if you're looking for a flexible, low-maintenance way to live, renting is a great option.

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Is renting really throwing money away?

Every month, you hand over a large chunk of your hard-earned money to your landlord. For what? The privilege of living on someone else’s property? It can be tough to stomach, especially when you see people buying homes and building equity.

Surely, you must be throwing money away by renting, right? Not necessarily.

When you rent, you’re not throwing money away. You’re paying for a service: the roof over your head. And unlike homeowners, you don’t have to worry about things like maintenance, repairs, or property taxes.

Of course, there are some downsides to renting. You don’t build equity in the property, and you may not be able to put your personal stamp on the place. But if you’re looking for a flexible, low-maintenance way to live, renting is a great option.

The advantages of renting

Renting has a lot of advantages, especially if you’re not ready to commit to owning a home.

For starters, renting is much cheaper than buying a home. When you buy a home, you not only have to come up with a down payment, but also things like closing costs, appraisal fees, and home inspections.

Plus, you have to factor in the cost of repairs, maintenance, and all of the upkeep on your property. From repairing a leaky faucet to fixing a broken window, all of the repairs are on you—and they can be expensive.

But when you rent, the landlord is responsible for all the repairs. So if something breaks, you can just pick up the phone and get it fixed. Easy peasy.

It’s more than just the maintenance, though. Here are a few things you can say to the homeowners who tell you you’re wasting your money. 

1. You have more flexibility

Homeowners are locked into their homes for the long haul. If you need to move for a job, it can be tough to sell your home quickly. And even if you do find a buyer, you may not get your asking price.

When you’re a renter, on the other hand, you can up and leave with relatively little notice. Most leases are for 12 months, so you can give your landlord 30- or 60-day notice and be on your way.

Renting also gives you the opportunity to try out different areas before you buy a home. If you’re not sure you want to live in a particular city or neighborhood, renting is a great way to test it out before you make a long-term commitment.

2. Renting is less risky than buying a home

Your home is a huge investment, and the value of your home can go up or down depending on the housing market.

When you buy a home and the market crashes, you could end up owing more on your mortgage than your home is worth. This is called being “underwater” on your mortgage, and it can be challenging to get out of.

Renting is much less risky than owning a home. If the value of your rental property goes down, you’re not affected. And if you need to move, you’re not stuck trying to sell a home in a down market.

3. Renting helps you improve your credit

When you rent, you have the opportunity to improve your credit score. How? By making your rent payments on time, every month. Timely rent payments will help improve your payment history, which is one of the most significant factors in determining your credit score.

Of course, you could also improve your credit score by paying your mortgage on time. But if you’re not ready to buy a home, renting is a great way to improve your credit so you can buy a home in the future.

4. You have access to amenities 

Those living in an apartment complex or a rental community have access to amenities they wouldn’t otherwise have. For example, many rental communities have pools, gyms, and laundry facilities that residents can use.

Some complexes even have concierge services and 24-hour security. So, with renting, you not only have a place to live but also access to a wide range of amenities that can make your life easier and more enjoyable.

5. No real estate taxes

Have you ever heard someone say that they’re “house poor”? That’s when someone spends so much money on their mortgage, property taxes, and insurance that they don’t have much money left for anything else.g

When you’re a homeowner, you have to pay for all of those things. And they can add up! In fact, the average American pays $2,471 in property taxes every year. But when you’re a renter, you don’t have to worry about any of that. Your landlord is responsible for property taxes, insurance, and other costs.

6. No down payment

Let’s say you have your heart set on buying a home. But you don’t have the 20 percent down payment that most lenders require. What can you do? Well, you could get a loan from a family member or friend. Or you could take out a second mortgage on your home. But those options are not always available or may not be the best option for you.

Renting is a great alternative because you don’t need a down payment. In most cases, all you need is the first month’s rent and a security deposit. And that’s it!

A house isn’t always a good investment

Yes, a house can appreciate over time. But there are no guarantees. And even if your house does appreciate, it may not appreciate enough to offset the costs of buying and selling.

Consider this: the average home appreciation rate is about 3.8 percent yearly. But the average cost of buying and selling a home is about 4 to 6 percent of the sale price. So, even if your home appreciates at the average rate, you could still lose money when you sell.

Renting is a much less risky investment than buying a home. And in many cases, it’s actually cheaper. So, if you’re not ready to buy a home, don’t feel like you’re “throwing your money away” by renting. It may be the best decision for you, both financially and emotionally.

When is it better to buy instead of rent?

Of course, there are times when it makes more sense to buy a home than to rent. For example, if you plan on staying in one place for several years, buying may be the better option. 

The longer you stay in one place, the more time your house has to appreciate in value. And the longer you stay, the more likely it is that your monthly payments will be lower than your rent payments would have been.

Another time when buying makes more sense than renting is if you’re ready to start building equity in a property. With renting, you’re simply paying someone else’s mortgage. But when you own a home, you’re building equity that you can tap into later down the road.

So, if you’re thinking about buying a home, ask yourself these questions:

  • Do I plan on staying in one place for several years?
  • Am I ready to start building equity?
  • Can I afford the down payment and other costs associated with buying a home?

If you answered “no” to any of those questions, then renting may be the better option for you.

The bottom line

Renting is not throwing money away. In fact, in many cases, it’s actually cheaper to rent than to buy a home. And it’s a great option for those who are not ready to commit to one place for several years or don’t have the money for a down payment. So, if you’re on the fence about whether to rent or buy, consider all of your options and make the best decision for you.

Sam Garrison

Sam Garrison

Sam Garrison is the President and co-founder of Stackin, a financial wellness company. Before Stackin, Sam built and launched new ventures at BCG Digital Ventures, the venture and incubation arm of The Boston Consulting Group, where he also supported the executive team as strategic program lead. As a lifelong millennial, Sam has tried to solve most of his problems through technology instead of waiting in line at a drab office.