Aspiration & Struggle
Is Paying Rent Really Throwing Away Your Money?
Traditional financial logic dictates that paying rent is hardly better than throwing your money down the drain. “Buy, buy, buy,” many well-known financial gurus proclaim. Renting may not build equity, but it does offer other perks, especially for Millennials. Here, we look at the pros and cons of buying a home versus continuing to pay rent.
The Cost of Homeownership
Homeownership is expensive. Of course, you’re building equity when you buy a home, but you’re also responsible for renovations, general upkeep, possible homeowner association (HOA) fees, property taxes, and insurance. Homes are generally considered an appreciating asset, but this is not always the case. You never know what the market will do, as those who dealt with the mortgage crisis in 2008 learned practically overnight.
Being a homeowner also reduces your mobility. Once you sign those closing documents, it becomes much more difficult to move for a career opportunity or upgrade your living conditions should a situation—like the birth of a child—warrant the need for more room.
That being said, purchasing real estate can be an excellent way to expand your portfolio, especially if you plan to put down roots in a hot rental market.
When It Makes Sense to Stop Paying Rent
“The rental market in Nashville has become increasingly expensive over the last few years, and that was what initially got me interested in looking into buying a house,” explains Erica Schoch, a 26-year-old RN3 nurse. “Once I began looking, I found a price range where my mortgage could be almost half the monthly rent for comparable places.”
Erica decided that buying a home in Tennessee would offer her a multitude of benefits. She could build equity, decrease her per-month costs, and develop a great investment that could ultimately turn into a rental property when she was ready to move on.
The Great Renting Debate
There are plenty of Millennials stuck paying rent simply because they live in an expensive market. Housing markets in cities such as San Francisco and New York City are cost prohibitive, making it difficult for young professionals to afford a reasonable down payment. But renting is more than just paying a landlord for a place to live. It gives the renter a unique advantage: a stress-free living situation.
“The biggest perk of being a renter is not having to worry when appliances break, roofs leak, and sinks clog,” says Hannah Atkin, a 26-year-old user experience designer living in New York City. “I don’t own the place, so it’s not on me or my wallet to fix these problems.”
So, Is Renting Throwing Away Your Money?
Yes and no. Renting lines someone else’s pocket, doesn’t establish equity, doesn’t help build a credit score, and is more or less a wash in terms of building financial health. However, there are benefits to being a renter such as enjoying worry-free housing and having the flexibility to explore any possibility life throws at you. Should a job opportunity open up in another market, renters can jump at the chance without any complications beyond breaking their lease or finding a subletter. Homeowners have to worry about selling their house, possibly carrying two mortgages, or renting concurrently with paying a mortgage.
Ultimately, your decision to rent or own should be based on the market and your ability to actually afford the price of home ownership. Consider all the angles before you sign on the dotted line—whether we’re talking a lease or a mortgage.