Are you better off renting? That is a question that has plagued people since the concept of ownership. On the one hand, if you add up all the rent you’ve paid through the years, it can be substantial. For example, here in the Bay Area where rent averages $2500 a month, if you lived in a place for 5 years that’s $150 000. That money could have gone towards owning real estate.
Of course, you have a chicken-and-egg issue. You may not necessarily have enough to put as a down payment on a house because you just gave away that money to rent. That’s one way to look at it, though not necessary the right away. Most of us tend to have all-or-nothing thinking, like, “Better buy something soon. It’s foolish to be throwing your money into rent when you can have your own place!”
Or the ever-favorite one that everyone uses, “A house is a good investment.”
Rent serves a purpose, and buying may be the wrong answer depending on where you are in life. Here are 5 good reasons to rent instead of buy.
Better off Renting: You’re Early Into Your Career
If you just graduated and are starting in your career, it will be hard to buy anything from the get-go. In this case, you’re better off renting. After all, you’re just starting to build up your savings. This is also a time when you’re searching not just for jobs, but also for meaningful work that drives you and gets you up in the morning. For many people, college had definitive mileposts. Once you leave the regiment of college, it can be hard to find meaning in your vocation. The search for meaning takes time. Sometimes, it takes a long time.
Buying will just tie you down to one area, limiting your mobility and your options. Most new grads also take this time to job-hop, increasing their salary much faster than they could staying at the same company for years.
You could be giving yourself 10% to 15% raises by switching jobs every year. Staying only gives you a 1% to 3% raise. Or sometimes not at all, as I experienced in a position that I stay with for 6+ years. Most of the time, I received less than 1.5% raise. This was barely enough to cover the cost-0f-living increases.
I would recommend staying at a job at least one year for several reasons. It typically takes that long to learn an job. Also, your new employer may be leery if you jump jobs often. It takes time and a huge capital for a new employee to ramp up to the position.
More money in the pocket means the ability to buy something. Better yet, you can buy time to figure out what matters to you.
Try Before You Own a House
You’ve just moved clear across the state or country, into a new neighborhood. Everything’s new and different. The supermaket branding is different than what you’re used to. The major coffee chain branding is different, too. This is probably a time where you would want to try out the area to see if it has what you want rather than to be tied down to a house.
Depending on the price of the house, it can take a few years to many years to break even. Renting gives you the option to walk away from an area you find to be less than what you thought it would be. Sometimes it can be the opposite way, too. After just a a few months, you decide to buy something. Renting gives you a buffer, and more importantly, time which can help you avoid expensive mistakes.
It’s More Expensive to Own Than to Rent
Depending on the area, it can be more expensive to buy than to rent. For instance, investors may have purchased properties in the area years ago and are holding onto it. That means houses that go on the market will typically be higher than what investors paid. Those investors need to stay below the mortgage threshold to make their rental properties attractive, meaning they will charge less in rent than it costs to buy.
Of course, there’s the general upkeep and maintenance that goes into a house. When you own, you have to fix anything that breaks with money out of your own pocket. As a renter, you just call up the management company or the landlord and let them worry about it.
Of course, then there’s the yearly property taxes to worry about. In some parts of the country, it can be very high.
Better off Renting: You Have More Freedom
Want to move from the midwest to the coast? With a rental, after your lease is up you just pack up and go. As a renter, you may have and keep far less things than you would owning. In other words, you’re less tied to an area than a owner would be. An owner has a vested interest in keeping up with what others do so that so that property values go up. Put it another way: Owners can become slaves to their homes.
Freedom of the Mind
There are no U-Haul trailers following hearses at funerals. When you leave this planet, you cannot take anything with you. Many cultures tried that and got robbed.
How much more free would you feel if you freed yourself of the materialistic goods that the everyone else chases? Money, too, is an idea that everyone chases, thinking that if they have more of it then life will be better. People who own have this idea that they need a sofa and big screen TV in the living, a master bedroom set, silver display case in the kitchen, or cars to fill up the garage and the driveway. (Or maybe having these things is just me…others will have their own ideas what they should have…but you get the point.)
What they fail to see is they’ve been following a paradigm they see on TV of how they think they should live. When you listen to the advice that you should stop renting and own instead because you’re just throwing away money, you’re following the masses.
Is that the right answer? Is that what you really want? Would it be better to be free? Free yourself of the idea that you can never afford something because you’ve been told this story since you were a child. Instead, ask yourself how you can afford it. Statements limit you. Questions free you and open you up to possibilities.
Free yourself from doing what everyone else does (like own a house for the wrong reasons). Chances are they are just following everyone else. Instead, ask what’s the best choice for you, given your current situation.
Freedom to Live Wherever You Want
What if you’re able to achieve a lifestyle where you can live anywhere in the world, because you’ve mastered the art of working anywhere and being able to make money?
Owning a home means you’re tied to that area. It’s a lot harder to travel around the world and be a nomad, living in one place for a stretch at a time. Sure, you can put your house up for rent. Still, it’s always in the back of your mind and that extra barrier makes it harder to achieve a freedom lifestyle, free from the constraints of being tied to any one area.
When you own a home, there’s a feeling that you’re giving up something–in some case, a lot–to achieve this nomadic lifestyle. As a result, people often are too scared to take the steps they need because they believe that somehow they are losing.
Of course, if you’re able to get out of this mindset then you win! What are some ways to achieve this lifestyle, even if you own? You could rent out your current place and pay someone else to worry about the headaches of collecting rent and repairing things. That’s after all how some folks have made their fortune in real estates. It’s just that there’s this belief that it’s hard to find good renters. How often have you heard of your landlord friends saying they love their tenants? Instead, you hear horror stories.
If that’s true, then how is it that some people have made their fortunes in real estate and achieved financial success? They have had to this shift some of their money mindsets. One of the is paying someone else to do the things that they themselves do not want to do.
Perhaps then, when we say you’re better off renting, we also mean as a landlord!
The best financial advice in the world will fail you if you have bad mindsets around money. What are some examples of bad money mindsets? Investing is only for the rich. I can never afford that. Money is the root of all evil.
I had many of the same money mindsets that you may now have. Through a concentrated effort, I was able to change most of these around. In the process, I transformed from a clueless guy–feeling like he’s barely making it–to someone who’s achieved a measure of financial freedom.
I invite you to get your free gift, 7 Money Mindsets Preventing You From a Positive Cashflow, today.
Discover the 7 most common myths (false beliefs) around money that’s keeping you from having more money!