Some beliefs are so well entrenched in society that few among us question them. A good example is a belief that buying a home is always a great investment that will appreciate in value.
If you look at what happened in the 2008 financial crisis, however, this belief is questionable. While homeownership has its benefits and may be right for you, renting can have several advantages over buying, including:
1. Tie Up Less Money
When you buy property, you plow a lot of money into it. There’s the down payment, typically around 20% of the cost of the home, plus settlement fees (appraisal fees, financing fees, title insurance, transfer tax, escrow) that often range from about 2 to 6% of the purchase price. So if you’re buying a $200,000 house, you could be tying up over $50,000 in cash.
If you’re floating in a sea of cash, finding a place to invest it could be the right thing to do. But if money is a little tight, you might want to think twice. After all, there’s value in having cash on hand for financial emergencies, expenses, and of course the opportunity cost of other investment opportunities that may generate a higher return.
2. Better Cash Flow
It’s not just the initial costs to consider when buying a home; it’s also the ongoing ones, including mortgage payments, property taxes, homeowners’ insurance (typically more than renter’s insurance), home maintenance, and landscaping. It’s also not uncommon for major cash needs to occur without warning. You might move into your house and find yourself investing in a new roof, hot water heater, or another physical or mechanical system such as the air conditioner. That could set you back hundreds or many thousands of dollars.
3. You’re Not Stuck!
Renting can give you the ultimate flexibility to move when your lease is up. If you’re new to the area, you might want the option of changing your location. While you’re renting, you can check out different neighborhoods, find the one that best meets your needs, and if you like, make a move in less than a year (depending on the length of your lease).
Also, it’s easier to change jobs. Imagine the scenario where your employer offers you a dream job in a different state but your willingness and ability to accept is hampered by the expensive asset you own (your house). If you’re renting, simply wait until the lease is up and you can move.
Similarly, if life takes an unexpected turn, such as a job loss, you can usually downsize relatively easily and cut costs more rapidly than if you had purchased a home.
4. Move In Quickly
Sometimes you want to make things happen quickly in days or weeks. When you’re buying a home, however, that’s not the way it works. You have to search for the ideal house, condo or townhouse, handle home inspections, obtain a mortgage and go through the closing process. It takes time and can be stressful. If you’re moving to a new town, and just want to get established in your environment and job, you may prefer to skip the home-buying process and live the rental life.
5. Maintenance Generally Included
Owning a home comes with maintenance worries, which have earned some houses the name money pit. If you’re not handy or have better things to do than fix leaky faucets and shovel snow, you’ll likely enjoy the maintenance-included living that comes with most rentals. Plus, you won’t have to waste your weekends weeding flowerbeds and mowing lawns. Calling building maintenance to take care of a roof leak, the air conditioner that stopped working or some other mechanical component of your apartment is a lot more stress-free (and financially less painful) than taking care of the very same problem in a home you own.
6. Built-in Community
In most rental communities, you live close to your neighbors and can quickly strike up new friendships. This is true of many home purchases too but often times in rental communities, units are closer together and naturally present ample opportunities for socializing in both common amenity areas and perhaps organized social clubs.
7. No Worries about Home Depreciation
It’s easy to get excited about buying into real estate when there’s a market upswing. However, the adage of what goes up also goes down is based on a lot of truth. In the wake of the Great Recession and 2008 financial crises, many homebuyers made this discovery. Homeowners found themselves underwater in their mortgages with home values lower than their financial obligations. Renting can protect you from such volatile market swings.
8. Amenities of the Rich and Famous
While you’ll have to share the amenities with others in your community, you may have access to facilities that only the very wealthy can afford in a house. Imagine relaxing in the pool on a hot summer day, having a playground in your backyard, or working out in the gym and then loosening up your muscles in the hot tub.
So when you’re considering whether to rent or buy, think about your own needs. Do you want more flexibility with your money and mobility? Would you prefer not to have to worry about maintenance issues and home depreciation? And would you enjoy the rental community lifestyle that offers amenities that you might not be able to afford if you were buying? Home ownership and purchasing a home might be right for you but consider all the factors, including the many benefits of renting, and make the best decision for you. There are lots of benefits to renting an apartment.