4 Situations When Renting Makes More Sense

by Emily Guy Birken · 12 comments

“Renting is just throwing away money!”

I can’t recall the first time I heard this old chestnut, but I do remember wondering about it. I must have been in my early 20s at the time, and I couldn’t understand how spending money on having a place to live could be a complete waste. Granted, I realized that I could be doing more with my money—building equity, for instance — but for where I was at the time, owning a home was simply not an option.

It’s been several years since I went through those thought processes, and after the housing collapse of 2008, I’m seeing that many young professionals and families are a little gun shy about purchasing that first home. The question is: Are they being unnecessarily cautious – and throwing away their money on rent? Or are they making a sound financial decision by continuing to rent? Here are some reasons why renting might be the smarter option:

Your Circumstances Could Change

My sister and her husband live in Virginia and dream of owning their own place. However, my brother-in-law’s current navy billet will only last for another two years, and after that it’s likely that he will be assigned elsewhere in the country. Under these circumstances, it makes no sense for them to buy a home, just to be saddled with a mortgage for a house they can’t live in. While they could potentially rent out the home and thereby use it as an investment, that would require a great deal of coordination from out of town. For them, it simply makes sense to wait to buy until they know they’ll be staying put for a while.

You Don’t Have a Down Payment

Once upon a time, this wasn’t something that would bar you from home ownership. Thankfully, things are a little more stringent these days, which is good for homeowners, banks, and the rest of us. If you don’t have enough money saved to put 20% down on a home, then rent an inexpensive place and focus on putting money away.

Another money factor to consider is whether you have enough money or expertise to handle the upkeep of your new home. Being a homeowner means that the buck stops with you when the plumbing backs up or the roof needs to be replaced. If you are not able to handle that yourself, then continuing to rent makes better sense.

You’ve Just Moved Into a Community

If a job or a degree has taken you to a new part of the country, it could be tempting to go ahead and buy a house as soon as you get there, so you only have to move once. However, you don’t necessarily have the lay of the land as soon as you get to a new community. For instance, my husband found his first house after looking around Columbus, Ohio for over a year. He started by looking at gorgeous old homes in a run-down area of the city, and ended up in a well-established neighborhood that was perfect for him. Had he bought the first house he fell for, he would have hated the neighborhood, his commute, and the level of care the old Victorian needed. As it was, the extra time searching led him home.

Your Credit Isn’t the Healthiest

While you don’t have to have a perfect credit score in order to qualify for a home loan, having a low score will raise your interest rate and make home ownership that much more expensive. If your credit history is a little spotty, it makes sense to spend a couple of years rebuilding that credit as a renter before you jump into home ownership.

Sometimes, renting is the more prudent solutions to our living situations. Don’t jump into buying a home just because you believe it’s always the right decision.

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{ 12 comments… read them below or add one }

20 and Engaged August 19, 2011 at 11:47 am

We’re renting until we get enough money for a down payment, which is most likely going to take a few years to save up.

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Louis August 20, 2011 at 6:33 am

For a first-time home-buyer, a good rule of thumb is: do not borrow money to buy a house amounting to more than two times your annual income. If borrowing that amount is not enough to buy a house after the down payment, you will need to save for a larger down payment, or start earning more money. If you can meet this rule, then you are in a strong position to buy a house. Good luck!

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kiki May 2, 2012 at 10:23 am

This good rule of thumb may have worked in the 70s and 80s, but have you compared house costs with starting wages?

Where I live (southern Ontario), a house will easily cost $400,000 for a starter. Assume I have $50,000 for a healthy down payment (25%), that means I need to be making $175,000 (or my wife and I combined). Not many people make that kind of cash when they start out, and I’m nowhere near that much after decades of working.

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The Money Ways August 22, 2011 at 5:52 pm

Another situation that we’ve run into is in areas where renting is inexpensive relative to owning a home. When apartments and rentals are overbuilt and people are giving good deals on rentals it may make sense to rent. This is especially true if you are in an area that also has high property taxes.

Also, when we lived in San Francisco and the average home was over a million dollars and apartments were controlled by rent control, it seemed to make sense to rent.

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Patrick R. Carlson August 23, 2011 at 9:41 am

This is great advice on making sure that you don’t overbuy or buy when you really shouldn’t. As part of my firm’s bankruptcy practice, we often see people who’ve purchased a house that’s too expensive for their means. Oftentimes, renting makes more sense, especially if you don’t have a reserve or rainy day fund to handle unexpected financial strain from house repairs, job loss, or other expenses.

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Little House August 25, 2011 at 8:37 am

These are all excellent reasons to rent instead of buy. I think that ultimate goal with buying a home is to be mortgage free at retirement. But that doesn’t have to mean buying a home by any particular age. It means utilizing your money in ways that make you money and choosing a place you can afford to live in. There are lots of alternatives to McMansions. And sticking to the 30/30/3 rule helps.

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CreditShout August 25, 2011 at 12:05 pm

I think renting is extremely smart in this kind of housing market! That way you aren’t tied down anywhere when you’re young and you can still save up for something really great when you’re ready. Buying is SUCH a commitment that shouldn’t be taken lightly, and I think a lot of people are beginning to realize that. I don’t think that adage will be around for much longer.

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Jean August 28, 2011 at 11:08 pm

Being one of the states that has been recently affected by the earthquake here in the North East, as well as Hurricane Irene, it really made me think about house ownership. I am currently renting an apartment, and although we did not sustain damage from the earthquake, it made me realize just how the risk was completely off my shoulders when I am renting the apartment. Nobody around here is going to have earthquake insurance or any sort of insurance related to that since it is such a rare event. So, what if the earthquake really had done substantial damage to the home I live in… it was kind of a big wake up call for myself. Although I do believe I will own a home in the future, for the time being it has opened up my perspective and made me realize its more than just a financial burden when you purchase a home.

-Jean

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Tho Pham May 29, 2012 at 5:29 am

In Vietnam, if you work in state sector, you will need about 200 years in order to buy a normal house. Medium income for one person in year is only 30,000,000 vnd (about 1,500 US dollar)

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Lifeisdynamic September 13, 2012 at 6:55 am

Pho, Forgive my ignorance, but help me understand please. Why is there such an imbalance between Vietnam incomes and the cost of owning a home? Is the question one of politics or economics?

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Lifeisdynamic September 13, 2012 at 6:58 am

Sorry for the mistyping of your name, Tho. I hope I have not insulted you.
Judith

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Kate April 11, 2013 at 3:28 pm

I am 65 and have rented all my life. This makes very good sense for me. (1) I do not like to stay in the same place forever. I have lived in six states and 2 countries, and I travel a lot, so I don’t want to bother with upkeep or come home to find my place has been burgled or the pipes have burst. (2) In some of the places I have lived, the neighbourhood has suddenly hit the skids; better to be able to skedddle rather than stay and watch your investment disappear, not to mention risking your life; (3) My health is changing as I age, and what was easy for me to handle when I was younger and healthier no longer is; (4) this neighbourhood, which is generally pretty high class, is going to turn into a construction site for the next two years. Not only are they building THREE 30 story condo buildings within 2 blocks of me, but they announced last night that they’re going to start ripping off the balconies of our building in June and MAYBE they will be finished by December! Fortunately I can follow my retirement star to a quieter area with no financial pain.

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