Renting is "Throwing Money Away"–BUT THE GAG IS–(it's not.)
You often hear phrases like "renting is throwing money away."
That needs to stop.
A six figure decision cannot be justified by a lazy cliché.
There's levels to this. Never make money decisions based on myths. This article from Afford Anything breaks it all down for you in great detail.
Here is a summary of the three main arguments.
Argument #1: When you pay rent, it goes towards nothing. Owning a home builds equity.
It's all about opportunity cost. You're giving up one thing for another and you need to ask yourself what you're willing to miss out on.
The questions you need to find out when making this decisions to rent or own:
Are you better off:
- Tying up your cash into a home?
- Finding an alternative investment, coupled with a rent payment?
Any cash that’s tied up in home equity, including the down payment, is locked into a lifetime of just-keeping-pace-with-inflation.
This opportunity cost, combined with the additional overhead of homeownership, can (in many markets) negate any advantage that comes from owning.
Argument #2: Rent Payments Never End. Mortgages do.
People have this tendency to believe the illusion that once they pay off their house, they're done putting money into it. This is flawed logic, do not fall into this trap.
After you purchase 100% home equity, you own your home “free-and-clear.” This does not mean that you’ll never spend another dime on your home again. It merely means that you no longer need to make principal and interest payments, which are known as “P&I.”
However, P&I are only one of many home-related expenses.
Your other costs include:
- Renovations / Depreciation
- Property taxes
- Homeowner’s insurance
- Utility bills
- Municipal usage fees (water, sewer, trash)
- Homeowner association dues (if applicable)
- Transaction fees, commissions and closing costs
- Opportunity costs
How much can this cost? Depending on where you live, those expenses could cost equal to or more than rent on a comparable property.
Whether or not you rent or your own, you will always be paying for housing in one form or another.
Argument #3: When you own, the value of your house rises. Renters are stuck paying forever.
Maybe some of you are drawn to risk, but for me, I prefer to make financial decisions based on what's known, not unknown.
“Buy-and-pray” is not a wealth strategy. Don't let speculation drive a six-figure decision.
The three places equity comes from:
- Principal Reductions - paying off your mortgage, basically
- Forced Appreciation - Making your home's value rise by doing something like renovating your kitchen.
- Market Gains - Growth based on the overall housing market.
What’s the cost of these?
- One requires opportunity cost.
- One requires skill.
- One is outside of your control and historically keeps pace with inflation.
I’d hardly call this a “benefit.”
So...is Renting Better Than Buying or Nah?
Your answer is going to depend on a massive number of factors, including:
- The local price-to-rent ratio.
- How long you’ll live there.
- Your alternative investment options.
- Your assumptions about inflation and investment gains.
- Maintenance, repair, insurance, property tax and capital expense costs.
- The rate at which rents rise.
- Et cetera, etc., etc.
- You get the picture.
My goal is to impress upon you — once and for all — that this myth that “renting is throwing money away” is wrongheaded.
These sayings about renting vs owning need to stop. Don't make decisions based on lazy clichés.
Don’t oversimplify the biggest purchase of your life by claiming that building equity is always superior.
For me, renting is something that makes sense. I get to outsource all of the costs of home ownership, and Detroit rent prices are treating me well right now.
Although I am a creature of habit and stability, I take great comfort in knowing I can "peace out" at any moment and move somewhere else. I also hate debt.
When considering buying or renting, it's a question of priority and choices.
Make sure these decision come from YOU and your desires. Not from social pressure.
...I might buy a plot of land one day and build a tiny house, but that's for another article.
Afford Anything has a very in-depth explanation for you breaking down numbers and situations.
It's a long read, but addresses a lot of the logical fallacies of thinking that owning a home is ALWAYS better than renting.
Renting is Throwing Money Away … Right? from Afford Anything.
Find your True North
Do you have an urge to buy a home? For what reason? Is it because that's what everyone else is doing? Do not make decisions based on lazy clichés and social pressure. What do YOU want? It's safer to rent until you figure that out.
How important is mobility to you? Do you have comfort in knowing that you could leave a place at any moment, or is it more comfortable knowing you are in one place for the long run? Can you achieve these things with renting or owning? The answer might be both.
I listen to Audio Books every day.
To be honest, reading books make me fall asleep. Once I learned that I learn best when I hear something, I'm blasting through almost three books a month. Audible is an audiobook subscription service that allows you to do that without spending so much money. You can subscribe and get one book a month* or just buy them as you go. Consider becoming a member. It's one of the expenses I find worth it.
PS: I also want to say Keke Palmer did not invent "but the gag is". It is not hers. It was made by black gay men. Don't get it twisted. Here is some light discourse.