Why I Rent
June 05, 2014One of the things that probably most surprises people about me as a financial planner is that I rent. After all, we’ve always been taught that renting is “throwing money away” while home ownership is a good long term investment and the hallmark of adulthood and the middle class. In my case, the fact that I’m a renter may be particularly surprising given that I’m also a real estate investor. So here are some of the reasons I’ve chosen to rent:
1) Cheaper. If you live in a really expensive housing market, have a really good deal on a rent-controlled apartment or share with roommates, renting may be cheaper than owning a similar place even in the long run. If you’re not sure, check out this nifty calculator that factors in all the pros and cons of both.
2) Better opportunities. If owning is cheaper than renting for you, you may still be better off renting and using your savings on something else like paying down high interest debt, building an emergency fund, or getting the match in your 401(k). Even if you want to invest in real estate, there are probably better opportunities out there for you. After all, what you’re looking for in a home may not be what makes the most sense as an investment. You don’t always want to own what you use. As an example, some of the best stock investments have been in industries like tobacco and fast food. Sometimes you want to invest in something you would never consume and vice versa. I would much rather put money as a down payment on a rental property that can produce a double-digit return on cash and allows me to write the depreciation off my taxes than on a home that actually increases my expenses.
3) Lower expenses. Once you realize that there are places to get a better financial return on your money, you can start thinking of housing as the expense it is rather than as an investment. In fact, thinking of it as an investment may be why housing has taken the biggest bite out of Americans’ increased income over the last few decades. (As long as I have enough space to do what I want to do, I’ve never understood the appeal of large homes. To me, it just means I have to walk further to get from my where I am to where I want to go.) Instead, of running on the hedonic treadmill of bigger and more expensive houses that just cost more time and money to maintain without actually making you happier in the long run, consider looking at housing as an expense to minimize so you can free up that money for things that are likelier to make you happier: experiences and financial freedom.
4) Flexibility. One way your home CAN lead to lasting happiness is with a shorter commute. Another advantage of renting is that it makes it easier for you to move with job changes and keep that commute short. On the other hand, owning a home can not only stick you with a longer commute after a job change, it can also cause you to forego job and educational opportunities that can make a big difference on your future, especially while you’re young.
5) Less Maintenance. I hate dealing with maintenance issues. As a renter, I let my landlord deal with them. As a real estate investor, I let the property management company deal with them. Why would I want to spend more money only to have to deal with plumbing problems myself?
There could come a time when owning makes more sense for me. I may want to make modifications to make it more my “own” or I may prefer the stability of not worrying about landlord raising the rent or deciding not to renew the lease, especially if I had a family. But for now, I’m happy to rent.
How about you? Do you rent or own and which makes more sense for you? Leave your thoughts in the comments section below.