When we think of the “American Dream,” we don’t think about apartment complexes, condominiums, or even rental houses. We think of a home with a white picket fence that we own. It’s something that almost everyone works toward, and generations before us certainly mark it as a sign of success.
However, things have changed dramatically since the days when homeownership was the ultimate goal. Now, nearly two-thirds of Americans live in areas where it’s actually more affordable to rent than buy. Many young families and single adults are drowning in student loans and other forms of debt, which makes the concept of owning a house a distant dream.
Although these changes might sound sad, in reality, it might just be a different way of life. Renting is no longer the sign of financial inability it once was. In fact, it’s actually a financially savvy decision for many in specific circumstances. Homeownership in many parts of the country has become a ball and chain that drains bank accounts and adds to families’ stress.
Today, let’s talk about some of the situations in which renting can actually be MORE cost-effective than owning.
If You Live in a Market Where House Prices Are Appreciating Quicker Than Rent
Some parts of the country, especially big cities, are facing a bit of a dilemma. Not only are rents rising faster than wages, but home prices are appreciating quicker than rent in almost every part of the area. This makes it nearly impossible for people to purchase a home.
This has made life very hectic for landlords in big metropolitan areas. Chicago, San Fran, LA, New York, and Seattle property management companies are seeing all kinds of growth as the housing market prices continue to skyrocket. People are consistently deciding to rent more than they buy, which means the competition for apartments and townhouses, as well as rental houses, can be steep. In California, Berkeley apartments can be as low as $1.9K for studio-type with bathroom. Nowadays, we don’t need a larger space to rent especially for busy people who just need a place to sleep and rest.
Even some less-populated areas of America are beginning to face similar markets. Before you set your heart on purchasing a home in the near future, do some research on the rates of rent increases and house appreciation before you make any decisions. You may find that it’s not economically viable for people in your salary range to purchase a house, and that’s okay. Renting what you can afford is a far wiser choice than buying what you can’t.
If You’re Not Fully Committed to Staying in an Area
Purchasing a house is a long, expensive process. You’ll likely need to apply for a mortgage, which will impact your credit score. Plus, there will be real estate agent fees, utility startup expenses, property taxes, maintenance expenses, and much more.
If you’re not 100 percent committed to staying in one place for multiple years, then buying a home might not be the best choice financially. Renting can be more sensible if you want out of the apartment lifestyle, but are not ready to commit to a long mortgage. Plus, you won’t need to save up a down payment to rent, which means you can continue paying off debt and handling other expenses in the meantime.
If You Don’t Want Your Cash to Be Tied Up
Speaking of paying off debt, most Americans need access to their cash now. The average household has $132,529 in debt and more than 44 million have student loans to pay off. If you consider the amount of interest that’s compounding on these outstanding debts, the most financially intelligent thing to do is tackle your debt now.
This might mean that saving up for a house down payment right now isn’t very cost-effective, and that’s okay. You can come out ahead monetarily by knowing when to rent and pay off debt, and when to save and buy. It’s just a matter of understanding if you need your money in your bank account now or if it can be tied up in a piece of real estate.
If You Want to Be Able to Move Quickly for a Better Job
Depending on your career path, you might plan on climbing the corporate ladder or switching from employer to employer. Doing that is difficult if you’re tied down to one place. Think about it this way: would you be more likely to take that higher-paying job across the country if you were renting an apartment/home or if you were five years into paying off yo-ur dream home?
As long as your career is in flux, it might be a good idea (economically and personally) to keep your doors open for a while. People might tell you that you’re “throwing money away” by renting instead of buying, but that’s not true if you’ll be open to higher salaries and better job opportunities. Make the decisions that will put you ahead financially in the long run, not just right now.
If You Don’t Have the Money to Pay for Repairs and Maintenance
Sure, you’ve thought about how much it costs to pay your mortgage and taxes for a home, but what about the other details? You’ll be responsible for everything from mowing the lawn to fixing broken appliances. If you’ve only ever rented before, this might be your first time taking on the tasks of a landlord.
According to HGTV, you should be able to set aside one to three percent of your home’s purchase price each year to deal with maintenance and repairs. That means that if you buy a $300,000 house, you’ll need to find at least $3,000 a year. For people who struggle to come up with an extra $500 to handle emergencies, this might be an impossible feat.
When you rent, most of these maintenance requests are handled by others. That means you can keep those extra dollars in your pocket to handle other expenses. Ask yourself: would I be comfortable setting aside a down payment, paying a mortgage and taxes, and handling all issues that arise? If not, renting might be the more financially stable choice for you.
At the end of the day, deciding whether to rent or buy is a very personal decision. With so many confounding variables and different situations, the answer can vary from person to person. The important thing to understand is that owning a house is not always the best financial decision, even if previous generations make it seem like it is.
Evaluate your savings, debt, location, and career ambitions before you consider purchasing a home. You may be surprised to find that renting is currently more cost-effective than buying, and that’s not strange at all.