Renting vs. Buying: 5 Situations Where Renting is Financially Smarter

I think we can generally agree that for most people, owning a home is better than renting, especially from a financial standpoint. But are there times when renting makes more sense than owning a home? I think there are – and here are at least five of them.

When You Move a Frequently

If you have the type of job that has you moving around every two or three years, or it’s simply a lifestyle choice that you prefer, you’re almost certainly better off renting than owning.

It’s not just that renting is a more mobile form of occupancy either. Every time you buy and sell a house, you are incurring transaction fees that typically cost thousands of dollars. These can include mortgage closing costs when you’re buying, and real estate commissions when you’re selling. Either way, you are incurring fees on both ends of the transaction.

Even if the value of properties that you own generally rises, it will be difficult to recoup all the transaction fees with just two or three years of real estate appreciation. In addition, many markets are not seeing price increases at all. If that’s the case, the transaction fees you are paying to buy and sell are coming right out of your bank account, rather than the sales proceeds. It’s an expensive way to live.

When Owning Would Leave You Broke

Despite the fact that most people would prefer owning over renting, everyone is not in a position to own a home from a financial standpoint. If not, you may be better off renting than owning.

We’re not just talking about the monthly payment on the house either. As a rule, owning requires more out-of-pocket costs than renting. For example, any costs for repairs and maintenance will have to be paid by you as the owner of the property. If you don’t have sufficient resources to be able afford the several thousand dollars per year that repair and maintenance costs require, renting may be a less expensive way to live.

Many of the houses that you see that seem to be in disrepair are occupied by people in this exact situation. Credit – particularly mortgages and home equity lines of credit – are not as easy to get as they were a few years ago. That means the cost of repairs and maintenance will have to be paid out-of-pocket. If a homeowner does not have the extra funds to cover these costs, the house will fall into disrepair.

In addition, since the majority of people buy homes that are either at or beyond their maximum ability to afford, and they end up being “house poor.” This is a situation in which you live in a home – often a very nice one – but have very little money beyond the home, causing a strained financial situation.

Make no mistake about it, owning a home requires extra room in your budget. If that extra room isn’t there, renting may be the better option. Not only do you have to think about the monthly mortgage payment, but the utilities, homeowners insurance and mortgage protection insurance, it all adds up!

When You Don’t Have the Ability to Maintain a Home

The cost of repair and maintenance expenses can be reduced if you have the ability to provide many or most of the work yourself. But if you don’t, and you need to pay contractor to do virtually every job that needs to be done on the home – from cutting the lawn to fixing the furnace – you may lack the ability to maintain the property affordably.

When it is More Expensive to Own than Rent in Your Area

There are some areas where the cost of rentals is not consistent with the price of buying a home. For example, if the typical home in your area sells for $300,000, with a monthly payment of $1,800, but you can rent the same property for $1,000 per month, you may be better off renting than owning.

True, you won’t the tax advantages that homeownership brings, nor the equity buildup from the amortization of the mortgage, but saving $800 per month on the basic payment is close to $10,000 per year – and that’s pure cash. You can use that for investing or paying down debt. And that doesn’t even taking account the repair and maintenance expenses that you won’t have as a tenant.

When Making a Major Life Change

There are various times in life when you might be making changes that are highly disruptive. This could include a divorce, a financial crisis such as bankruptcy, relocating to a new area, during a job transition, or starting a new business. It’s the kind of change that will radically alter your life, and even your financial priorities.

Many people look to own a home even going into such major transitions, but it might be better to rent until the dust settles in your life. Renting will provide you with the flexibility that you need, particularly in the event that circumstance don’t play out quite the way you’d hoped or planned.

It may be that there are times in life when it is better to own, and other times when it’s better to rent.

Have you ever thought that there may be times when it is better to rent than own a house?