Rent a Home to Save Money, Don’t Buy?

For the longest time the advice of nearly everyone, from your grandmother to your financial adviser is to BUY your home and NEVER to rent… after all, you’re just throwing your money away when renting, right?

Well, I’m beginning to differ on this and I’ll explain why in a moment.

Currently, you should realize that we’re renting the place we live. We did so because when we traveled out here for a few days last November to find a place to live we honestly had no idea where we were, from my wife’s office to shopping areas, good/bad places to live, and so on. In other words, it’s one thing to look at places on a map yet quite another to actually live there…. even visiting for a few days helps but isn’t the same.

Now that we’ve lived here in Washington for almost a year we have a much better idea of what’s where. As such, it made sense for us to rent at the time. It might still make sense if you’ll bear with me…

It seems to me that the advice to own a home is in part rooted in our past and in part rooted in the financial system. Once upon a time–when families purchased a home–they did so with the full intention of staying put for the rest of their lives. That was the mindset then and it made sense. If I’m going to live in a home until I die then I may as well have something to show for it!

These days people tend to move around quite a bit due things like job relocation or acquiring a new job but, equally important, are desires like simply wanting “something different” or as an upgrade (translated: larger home) and eventually a downgrade when the kids move out.

Loans Structures Lopsided for the Banks

For years (before the housing bubble) getting a home load was incredibly easy to do and it seemed everyone was winning, especially the banks. If you’re unaware, banks have a wonderful deal for themselves where they get to collect more of the interest due (as opposed to payment) on a home loan for roughly the first half of the loan and then your payments go more and more towards actually paying off the loan.

As such, you really don’t begin to pay off your home loan until the latter half of the loan. Just look up a mortgage rate calculator that includes a graph of loan versus interest payments and you’ll easily see the disparity. Certainly, banks have you by the “short hairs” and it’s all perfectly legal.

If you rent: You’re not trying to pay down a mortgage so you’re not getting the short end of the stick, if you will.

Closing Costs and Money Down

Moreover, there’s something to be said for the many thousands of dollars that a buyer often must pay during closing. Depending on the location and whether it’s a “buyers” or “sellers” market this could be a LOT more money. There’s also the agent fees to consider.

Beyond that, banks have tightened up their lending (at least the last time I looked) and often require buyers to put 10% or so of the loan down which, in many locations, amounts to tens of thousands of dollars. That could easily be money spent on plenty of other stuff, if you ask me. Besides, many people can’t put that type of money down.

If you rent: You don’t have ANY of these up-front costs.

Frequency of Moving Favors the Banks

Considering that the average American family moves every five years (according to Answers.com) it’s almost like you’re renting because you’re not really paying down much of the mortgage in that time. Granted, you do pay some but not that much in the first five years, at least.

If you rent: You can certainly move as often as you like AND not have to worry about things like closing costs from a seller’s perspective. 🙂

“Hidden” Costs if Your a Good Homeowner

We’ve both rented and attempted to own a home multiple times in our lives. One thing I’ve noticed is that we–like most upstanding people, I’d imagine–try to be good homeowners. A good homeowner is somebody who doesn’t allow the house to fall into disrepair and who even attempts to upgrade things.

Personally, I always wanted to make things better, from upgrading flooring (like tiling, replacing carpet, etc) to landscaping and more. I did it all and, sadly, I spent A LOT ultimately making the house better for somebody else! Looking back, I’m sure I averaged hundreds of dollars a month in various upgrades on our homes. Obviously, you don’t have to do this but I’d imagine many people do… at least everybody I know does.

There’s also something to be said for general repairs. Even DIY projects still have the expense of replacing whatever you need to fix.

If you rent: In most cases you’re not responsible for if/when things break (there can be exceptions) and, of course, you’re probably not going to be upgrading anything in a rental.

Downsides to Renting

I don’t want to make it sound like renting is a panacea either. Obviously, any smart homeowner is going to pass on their monthly costs to you, including paying down the mortgage/interest, taxes, insurance, and so on. They probably even add in a bit on the top to pay for repairs and maybe a bit more.

In addition, as a renter you are required to have renter’s insurance even though the homeowner already has homeowner’s insurance. The insurance typically isn’t very much but it’s still an added cost.

Moreover, you do have to ask permission to do things like painting a room or to make major changes, such as putting in a garden… even pet ownership may not be allowed. This is often a hindrance.

Which to Choose: Buying or Renting?

This is certainly only a question that YOU can answer for yourself. You have to ask yourself what kind of homeowner/renter are you. Are you the good kind that will want to make upgrades or not? How often do you move? Do you have the financial stability to put down tens of thousands of dollars during closing?

Honestly, I feel like I could have saved quite a bit of money if we’d simply rented instead, at least, until we found a place that we truly knew we wanted to settle down in. Thus far we’ve yet to find that place.

Regardless, this isn’t an easy decision to make but don’t just blindly jump into home ownership because that’s what you’re supposed to do. There are no doubt pros and cons to each choice.

What say you???


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My latest book, The Survival Blueprint: How to Prepare Your Family for Disaster, can be found here: https://www.amazon.com/dp/B0CJ49Y5X4

Comments

6 responses to “Rent a Home to Save Money, Don’t Buy?”

  1. Survival Lady

    We bought our home in 2006. We bought the house for under market value because it needed some love. We have put some money into the house but still less than market value at that time. We are now 8 years later and we are selling the house for twice what we paid for it. We are taking that money and buying 20 acres and a small house in the country with cash.
    One good reason to buy not rent.

    1. That’s great news but I doubt most people are that diligent/lucky/smart to both buy low and sell high.

  2. Darcey Kobs

    The one thing that has been overlooked is that if you have a mortgage you have no privacy at all. If you rent, especially from a private landlord, you may actually be able to achieve some degree of privacy. If privacy is valuable to you at all, never have a mortgage.

    1. Interesting way to look at it. Thanks for the thought, Darcey.

  3. Frank

    My wife and I owned a modular home for 16 years in the Denver area, finally paying over $600 a month lot rent after the mortgage was paid. We sold the home when we retired and purchased a 38 foot motor home we planned to live in for the indeterminate future. After traveling for several months, then staying for a couple of years in the town we now live in, we finally decided to look for a house. We quickly found a suitable cottage for a very small sum and were able to pay cash for it. We now just have to pay about $400 a year property tax. Otherwise we would still be living in our coach. I think we did the right thing. Now… if we could just sell the coach.

  4. Major Dad

    I was a career Marine which meant that we moved several times over the 30 some odd years I was in. (I am living in my 22nd different house now). During that time, we either rented or obtained base housing until almost the end of my career.

    The reasons you state for renting make good sense, but there are also other options which some friends of mine did, and I am currently doing. Near the end of my career my wife and I bought a house in Texas in the mid 1990’s when interest rates were low (for that time.) We thought we might just stay there when I got out of the military, but then we changed our minds. When we did decide to move, we put the house on the market but it did not sell. So we contracted a local property management company to rent it out for us. I had talked with some other Marines who had also done this, and met with some good success. I can say that decision was one of the best financial decisions of my life.

    The house will be paid off next year and 90% of the payments have been made have come from the rental income vice my paycheck. We basically have taken all the rental income from the house and put it right back into the house itself, either through making the monthly mortgage payments or on they upkeep and repair of the house. The management company keeps on eye on the property for us, screens the tenants and collects the rent (and actually mails the mortgage check to the mortgage company for us). They have their own workers who repair/replace anything that goes wrong with the house (after contacting us for approval). We have had a few water heaters go bad and a Texas sized storm that made us replace the entire roof. But with the insurance company working with the management people, it was a very painless event that ended up costing us less than $2000 out of pocket for a complete new roof.

    During all the years of renting out the house, we did not take any of the money as current income to supplement my salary. In fact, for a few lean years, we actually had to contribute about $50 a month out of pocket to make the mortgage. But my wife and I figured that $50 a month is not a bad mortgage payment overall when we will own the house in the end. In turn, we now (as of January 2015) will own the house free and clear and have only put a very small percentage of our own money into it.

    As I am currently living in Alaska and plan to retire in the Midwest, we most likely will never again move back to live in our house there. But we now will have the option of keeping it to add to our retirement income, or to simply sell the house and use the proceeds to purchase a house once we figure out where we want to settle permanently.

    As a mentioned above, I had friends in the military that did something similar. They tried to buy a house at almost every permanent duty station where they were stationed, and then would rent it out when they transferred. At the end of their careers they planned to have 4 or 5 rental properties to either supplement their retirement or to sell for a gain because their renters were paying the mortgage for them. The key that makes this work is finding a good property management company to manage the property for you so that both you and the renter are kept happy and the property well maintained.

    In hindsight, we could have made a lot more money doing this, but as Christians we also saw this a way to help others. We have only had to evict one set of tenants for non-payment when they lost their job. We actually carried them (us paying the rent for them) for several months while they “looked for work.” When the management company discovered that they were no longer looking for work, but had decided to live only on their gov’t benefits (which could not cover the rent), we had to have them evicted and replaced with people who could pay the rent. We also had one other set of tenants who lost their job and again we covered them totally for over 3 months and allowed partial payments for a few more. But they eventually got back on their feet financially and were able to get current with their payments, and then pay back all that they owed in back rent. We were glad we were able to help them at a time of great need.

    As your article says, there are advantages in renting, but there are some other options available which have advantages for those who are able to purchase a house, even if they are not able to stay in it the whole time.

    Just some food for thought –
    Major Dad

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