Mar

Is Rent Wasted Money?

I don’t think so and neither does David over at the personal finance blog, Money Under 30: Personal Finance for the Young and Ambitious. David tells us in the following post why renting is not wasting money.

Do you agree?

All my friends who bought homes before their 30th birthday love to proclaim that they’re no longer “throwing money away” by paying rent. Although I too aspire to one day own my home, I’ve never felt like renting is wasting money. That’s because when I do buy a home, I will buy a place to live; not an investment.

Your House Is Not That Great of an Investment

It’s true: some make millions investing in real estate. Some homeowners have even been lucky enough to retire solely on the resale value of their home 30 years after they purchased it. For most, however, reality is very different.

Yes: over the long run, a well-maintained home in a desirable location should appreciate. But according to this report, economists say the U.S. housing market had a average annual return of just slightly more than zero over the last 115 years (adjusted for inflation). The stock market, on the other hand, averaged 7% annual returns. Faced with those figures, why would anybody invest in a home rather than the stock market?

Homes Suck Money

Next up is the undeniable fact that homes are costly to maintain. They must be painted, landscaped, and otherwise kept up to maintain value. And they are full of expensive appliances that break at the most inconvenient times.

Why do you think your landlord is so slow to return you call about the leaky sink? She wants to get as many years out of that sink as possible. Of course, she probably has a brand new sink in her own home (as would you, if you owned your pad). When we own our homes, we make repairs and renovations based on emotions, not resale value, making owning a home far more expensive than renting.

You Can’t Control Your Taxes (Or Your Neighbors)

When you buy a home, you make a long term commitment to your neighborhood, for better or worse. If you live a city or town with a great economy and school system, chances are your home value will increase. Unfortunately, so will your property taxes. If your salary isn’t soaring as high as those of people flocking to your town, you may find yourself unable to afford to stay there.

On the flip side, if your neighborhood deteriorates, you’re the one not just living there, but owning property. If you rent, you can move at the end of the lease and let your landlord figure out how to deal with the depreciating property.

The Bottom Line on Renting

My simple, no-nonsense financial advice on housing: Monthly housing expenses (whether rent or a mortgage) are your payments for a place to live. Spend accordingly, and save or invest the difference. If you want the pride (and responsibility) of home ownership, by all means buy a home—you might even make money on it. But don’t count on your home as an investment. And please, don’t beat yourself up for “throwing money away” on rent.