4 Reasons That Renting Isn’t “Throwing Money Away”

by Emily Guy Birken · 11 comments

Happy renters

One of the many hallmarks of adulthood in America is buying a home of your own. After all, having a white picket fence and all that comes with it is the American dream. And if you listen to experts (or even your know-it-all aunt), you’ll never find a better time to buy than right now — while the real estate market is still in recovery and interest rates remain low.

But just because buying a house makes perfect sense on paper doesn’t mean it’s the right decision for you. Here are four excellent reasons to continue to rent — and to ignore the experts who tell you you’re wasting your money:

1. Location, location, location

There’s a reason why these are the three most important factors in real estate — generally, the closer a home is to attractive amenities, the more expensive it will be. In many cities, that means the affordable homes are either in the suburbs or require extensive renovation.

So, if living in the heart of the city and being able to walk to local shops is important to you, then you’re probably going to prefer to rent. Considering the fact that you have to be happy in your neighborhood, as well as your dwelling, this is an excellent reason to forgo home ownership for the time being.

2. More cash flow

The fact of the matter is that you can often rent more home than you could buy with the same money, not to mention the amount of cash you need to have saved up for the down payment, closing costs, and ongoing maintenance issues. If you’re hoping to keep your cash available for a potential business, for ongoing education, or to weather an upcoming career change, then it makes sense to live in a rental so that your money isn’t tied up when you need it.

3. A focus on simplicity

Stuff tends to expand to the space allotted for it. If you prefer to live a modest and simple life, renting a smaller place than you could afford to own is a great idea.

Not only does this force you to think harder about your consumption because you simply don’t have the square footage available for every gadget and gizmo that marketers want you to buy, but it also allows you to simplify your financial life. You’ll be able to only worry about one housing payment per month — rent — and send all the money you save into investments or retirement. It’s a win-win.

4. Mobility

It’s a mistake to buy any home that you don’t (or can’t) plan to live in for at least five years — and this is particularly true since the housing crash. And while some renters know for a fact that their lives will be up in the air because of potential relocation or other changes, others may simply feel uncomfortable setting down roots just now.

There’s absolutely nothing wrong with wanting the sense of freedom and mobility that renting provides. Buying a house shouldn’t just be an economic decision — it should also feel right for where you are in your life.

The Bottom Line

Home ownership isn’t the right decision for everyone, which is why it can be frustrating to hear people describe renting as “throwing money away.” Whether you rent, own, or are looking to buy, the important thing is to make your decisions based on what’s best for you and your situation, rather than on generic advice.

When do you think that renting is a good idea? 

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{ 11 comments… read them below or add one }

MoneyStreetSmart April 5, 2013 at 5:51 am

I completely agree Emily. I think the convenience factor for renting is extremely important to consider. If you may be moving for work or family reasons, renting is definitely the right move, unless you have a heap of cash available to pay a mortgage even though you aren’t living there. Again, it comes down to everyones individual financial situation. For the majority of people, I would think renting is the best option (as the majority of people don’t have enough $ available to float a mortgage/maintenance/taxes).

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Alex C April 5, 2013 at 6:15 am

I rent my own place because my wife and I intend to move out of this area. Plenty of family memebers have told me that I am throwing away money by not buying a house, but it does not make sense to me.

I am just starting out in life and have lived in an apartment for the past year, so if I wanted to buy a house, I would also then need to buy a lawn mower and all that sorts of stuff that I do not need when living in an apartment. So for me it is the mobile factor for why I rent and realistically it probably would not be any cheaper because of all the junk I would have to buy for being a first time home buyer.

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Tushar @ Everything Finance April 5, 2013 at 6:40 am

Before we bought our house, I did enjoy the mobility, but around here, rentals in good locations are super expensive. It depends on where you live and how you life, but sometimes renting works just as well for people. It may not be the best financial decision long term, but it has it’s merits.

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@pfinMario April 5, 2013 at 7:48 am

I think that you should always compare the two options. Everywhere I’ve lived, you can generally buy anything you could rent (i.e. condos selling in the same building as apartments are rented)… and if you buy something and need to move out, you can generally rent it out. It’s important to balance both options against each other and take into account the effective costs of each, as well as factoring in the work, worry, and risk.

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@pfinMario April 5, 2013 at 7:52 am

Importantly, you mention “if living in the heart of the city and being able to walk to local shops…” If the heart of the city only allows for more tightly-packed lodging, why not look at buying a multifamily and living in one unit as an option? This can be as small as a duplex or as big as a huge apartment building. Twice, I’ve done the 4plex route and am pretty pleased.

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KM April 5, 2013 at 8:47 am

The assumption/stereotype I seem to be seeing here is that one rents an apartment and buys a house. It might not be as easy, but it is entirely possible to buy an apartment/condo and have relatively low expenses, while also making an investment. I currently own a condo that I rented out when I lived abroad, and aside from the HOA fees and annual property taxes, I have no additional expenses (the HOA covers the lawn mowing, snow removal, etc., and even pays for the water bill) that one would see in a house. Insurance is negligible at $22/month as opposed to $100 or so for a house. I am just saying – you could have it both ways if you don’t want the expenses of a house but are planning to stay in one place for a while. You can also rent it out if you move – I managed my rental from Africa with a slower-than-a-snail 3G connection, so moving to another state shouldn’t be a huge deal if you use a property management company.

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Christian L. April 5, 2013 at 11:30 am

Emily,
I’m a fan of renting because I don’t like maintenance work. On Mondays, my friends who own homes always talk about all the work they did around the house. They maintain the yard, fix plumbing problems, and so on. None of that appeals to me. I like my weekends to do what I want, not what my house dictates.

-Christian L. @ Smart Military Money

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Elvin April 9, 2013 at 3:59 am

Hi Emily,

I agree with the points you’ve mentioned here. My wife and I are currently renting our place and so far we have no regrets. I love our mobility. Every time an idea pops on our head like studying on other areas, there’s no thinking twice. We can move to that area with no hassle. I can’t imagine what will happen to us if we bought a house and then the idea pops – we will be stuck or we will pay the mortgage for the house that we seldom use and pay an additional rent. Bad idea.

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Rosemary May 31, 2013 at 6:40 am

Great article – there is so much to consider when buying a single family home. While it may be the American dream for some, the additional costs for maintenance and supplies can be overwhelming. Then the time involved in keeping up a home is another factor. I’ve been a renter, now a homeowner, and plan to become a renter again when I retire.

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Warwick June 23, 2013 at 8:53 am

You can try to justify all you want, but you are throwing money away by renting. Unless you can rent a place for less than the after-tax interest expense on a mortgage (highly unlikely unless you have 6+ roommates), you’re throwing money away. In most US cities, you CANNOT rent a comparable place for less than the cost of buying, and you don’t have much mobility if you just signed a 1-year lease.

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Jon P. October 20, 2014 at 9:11 pm

Yes, in some cases renting can be a better idea. However, rent is money used with no chance of future return. Anyone having done his or her homework before purchasing a home ( and thus maintaining it and making decisions on whether or not one is keeping it long term ) can usually expect to receive back the original investment – not including interest, of course. And therein lies the key to true financial success – controlling one’s purchases and that all important wealth-stealing interest! Interest is something one should strive to earn, not to pay.

I’m going to buy, but only when I’ve saved up enough to pay in full, in cash.

While waiting for that, I will make smart decisions with my money:

1) Paying off my debts as they come to me. Never holding a credit card balance longer than a month. If this means living in a small studio apartment and eating ramen, rice, and beans, so be it.

2) I will always buy small, fuel efficient and durable cars. I drive a 2006 Honda Civic now. It costs me nothing to fill up and next to nothing to insure ($25/month from Insurance Panda… woohoo!). I will not drive when I don’t need to, and use public transportation whenever possible.

3) Developing multiple revenue streams. Doing side jobs. Building up small businesses. Doing contract work. Basically doing whatever I can to generate income from multiple sources.

4) Grow my revenue and assets no matter what. Make sure I am always expanding and develop them to the point that they consistently generate reliable cash flow.

5) The most important one – make as much as I can. Save as much as I can.

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