Why is renting a great idea for many people?
We’ve all heard the benefits of home ownership – tax breaks, privacy, and building equity over time through appreciation and paying down your mortgage. If you know you’re going to be in an area for 10-20 years, owning a home makes perfect sense. It’s likely your home value will rise and you’ll have a nice nest egg to use at retirement.
So what are the major benefits of renting vs. buying?
1. Flexibility – Today’s work environment requires flexibility. Most people don’t stay at the same job or in the same city for an entire career like they used to. Careers are likely to take us to different cities. We’re also likely to change careers a few times. It is much simpler to move at the end of your Lease than it is to sell your house.
2. Predictability – Since owners are required to make most major repairs and maintenance, it’s easier to make a budget and stick to it when you’re renting.
3. Time – What is more valuable than our time? Not having the burden of maintenance and repairs means tenants are able to better budget their time. Many people enjoy spending their weekends on vacation rather than working on maintaining their property.
4. Liquidity – Responsible home ownership requires a significant down payment – tens of thousands of dollars – and often a mortgage that won’t be paid off for 15-30 years. You may be building equity, but you’re as liquid as a brick. Many seniors choose to sell their homes and rent. Some do it to downsize, but many choose renting later in life in order to realize the equity they have built up over the years. If they stayed home owners, they would never be able to enjoy that nest egg they spent decades building up.
So who are the people that benefit from renting?
- Professionals that are required to move frequently
- Young people that are still saving for a down payment
- Seniors that are downsizing and need liquidity
- Empty nesters that love to travel and not maintain a home
- Recent relocations that are taking their time to buy as they figure out their new community
Consider this, an asset is something that puts money in your pocket. When you own your primary residence, the only time this happens is when you sell it.