“Stop wasting your money on paying rent” is likely a phrase you’ve heard often. After all, the common version of the American dream consists of owning a home.
But is renting really all that bad? No, and sometimes it’s actually better than buying your own home. Yes, it’s true! In some cases, and for some families it’s smarter to rent than to buy.
However, that’s not the advice we often hear. I was personally suckered into the notion that buying is always better than renting. Why not, right? I was throwing thousands of dollars into rent each year. That’s money I could have used to buy a home and start building equity.
For about a year, I was looking for a place to call my own. But the catch? I live in NYC where property values are notoriously through the roof. Doing a quick search on Zillow.com shows the average home value in NYC is $548,000. If I had a million or two lying around, I wouldn’t have to think twice about buying.
But after searching and searching in the Big Apple, I soon realized that maybe buying wasn’t in my cards right now. Here’s why:
Housing Association Fees
First things first: let’s dispel the notion that you’re always throwing money away when you’re renting. While that’s definitely true, you can also be throwing away money when you’re buying.
For me, it hurt a little to be paying someone a couple thousands dollars each month, to live in THEIR apartment, when I could’ve been putting that money into my own place. However, the more I looked at buying, the more I realized I’d still be throwing money away, just in another form.
Depending on how much I would put down, I would have to pay a considerable amount of interest on my mortgage, compared to the principal, especially in the first few years. And since I was looking at condos and co-ops in NYC, I’d have to pay a maintenance fee, which can be as high as $2k every month.
As a young 20-something many things in my life are still up in the air. While I love NYC and want to be here for the long run, I wouldn’t be opposed to moving for the right opportunity.
Just picking up and relocating would be a complete headache if I had a mortgage. Renting, versus buying, just gives me more flexibility and convenience. Those are two things you can’t necessarily put a price tag on but are worth a lot to young adults and those just starting out their careers.
Unforeseen Fees and Expenses
Many home-owning hopefuls tend to forget the many, many other additional costs to home ownership. As I mentioned, maintenance fees are one of them. There’s also insurance, utilities, closing costs, selling costs, etc.
Closing costs can be as much as 4% so on a property that costs $500,000, that’s already $20,000. You have to consider all these additional costs when calculating whether your investment is worth and when you can actually break even.
Plus, there’s always going to be something that needs to be fixed or repaired, and don’t forget about the lawn work and grounds upkeep. When you’re renting, you don’t have to worry about any of those things.
Paying for Location
Sure, buying can be better than renting, but it depends on where you want to live. It’s all about location, location, location.
Manhattan is notorious for high prices and, while property values typically and historically appreciate, it would take me years before my investment would make sense.
This brings me back to flexibility. By that time, I’ll probably want to start a family and need more space. I could consider moving further outside the city, but that would lengthen my commute time and just be inconvenient overall.
There’s definitely a price to pay for a good location, and that’s one sacrifice I’m not sure I’m willing to make right now.
Buying vs. Renting is Personal
At the end of the day, making the decision to buy or rent is personal. Someone could tell you it’s better to buy but that opinion doesn’t mean anything because it’s not based on your own needs. There’s more to this decision than just money.
Factors like flexibility, convenience, and lifestyle count for a lot, but we often discredit those things because we can’t put a monetary value on it.
For now, I’m happy to stay put where I am and rent. That’s not to say my opinion won’t change a year from now or even a few months for now. But in this moment, it makes sense for me.
How do you feel about buying vs. renting? Do you think owning a home is smarter than renting, or vice versa?