8 Reasons Why it’s Now Better to Rent

January 28, 2011

In the last month, I have had at least 4 people in the early stages of their career tell me that they plan to rent rather than buy a home because they feel that home ownership is “just a myth” now.  They made compelling arguments as to why they prefer to rent rather than purchase a home.  Here are a few of the points that they have made:

1. “Rent checks are usually lower than mortgage payments, so your cash flow is better on a monthly basis.  This allows you to save more money for your retirement goals, college funding, emergency fund, or to save enough to be able to purchase a home later with cash and never pay mortgage interest.”

2. “When something breaks, like the hot water heater or dishwasher or furnace, you call the landlord and it gets fixed with no out of pocket expenses.  There is a $0 annual maintenance budget for renters.”

3. “There are no property taxes to pay, and in some cities that can be an astronomical savings.”

4. “It’s impossible to be “upside down” with a home valued at less than your mortgage balance when you are renting.  Your net worth is not subject to swings in value of the real estate market.”

5. “If your neighborhood becomes undesirable (i.e. increased crime rate, deterioration of neighbors’ houses, new highway through the middle of your neighborhood), you simply move.  There are no closing costs, Realtor fees, or long delays waiting for the right offer to come in from a buyer.  Transitioning from one location to another is greatly simplified.”

6. “In today’s job market, it is very likely that moving from one city to another will happen at some point during your career (or at least from one part of town to another part of town).  If that happens and you want a shorter commute, just pack up your stuff and move.”

7. “Without nearly flawless credit and a 20% down payment, mortgage insurance will be added on to a mortgage payment.  Credit is tougher to qualify for now, and the cost of mortgage insurance can add significantly to your monthly cash outflow.  Renters escape PMI.”

8. “The real estate market, if one looks at very long term charts, is still a bit over-valued even after the collapse in home values over the last several years.  With a large inventory of houses on the market, high unemployment rates, high “under-employment” rates, and tight credit standards, there is little reason to believe that home prices will rise any time in the near future.  Buyers should prepare for a long period of price stagnation, so don’t buy a house now with the anticipation that it will escalate in value quickly.”

So, these are things that I have heard from younger people recently.  If I were in the early stages of my career, would I rent or buy a home?  After hearing these points being made by very smart people, I would have a lot of thinking to do before I made a decision.  Every situation is a little bit different and there are certainly plenty of arguments for buying a home as a way to acquire equity and build wealth over time.  Certainly, the pre-retirees I talk to who have paid off their mortgages are very happy they are not renting!

What do you think?  Feel free to share your opinions in the comments section.