You’ve probably heard all the arguments in the renting vs buying a house debate:
“Rent never ends”
“Buying a house means at least something goes to equity”
“A home is like a bank account”
These are seem true on the surface, but hardly capture the entire story. So, why would anyone want to rent rather than buy a house? Wouldn’t they just find another best way to invest 100k if they had it?
Here are 5 reasons why.
1. Renting is Flexible
The most obvious reason that people rent is because renting is flexible!
New job? Just move. Want a change of pace? Move.
Have a kid and need to upsize? Get a bigger apartment.
Owning a house doesn’t allow you to be flexible and change over time. If you do want to change, you have a huge cost to sell it and buy a new one.
2. Renting is Cheaper
Did you know that you can generally rent for less than buying a similarly sized home? While this isn’t true everywhere or all the time, in general this is true.
Most people compare the total mortgage to the total rent, and determine it is cheaper to buy. In fact, once you account for maintenance and other major expenditures, owning a home is far more expensive!
Don’t forget about maintenance
The cost of maintenance depends on a million factors, but the average cost is going to range from 1-2% of the home’s value.
So your $200,000 house will have a $2,000-$4,000 maintenance bill every year on average. It might seem high, but it averages in those expensive things like driveway repair, a roof, heating systems, and other major things that might break every 5 or 10 years.
So in 15 years, you can tack on an extra $30,000 in maintenance items.
3. Less Responsibility When You Rent
There is a lot of responsibility with home ownership. Lawn, snow, maintenance, repairs, etc. When you go out of town you have to worry about your pipes, copper, thieves, etc.
In an apartment, you only have to worry about locking the door and turning off the stove before you head off to travel the world.
4. Houses Don’t Appreciate
Most people believe that homes appreciate, but some great economists studied this and found that houses don’t actually appreciate over the long run.
They do appreciate enough to match inflation, but they don’t actually gain value beyond that.
If you look up the Case-Shiller Index, which is linked above, You’ll notice that for about 100 years US house prices hovered around 90-120 on the index. It could be high for several decades or low for several, but it seems to revert to a mean number.
You can see that after 2000 it skyrocketed and then came crashing back to reality. You can also see it skyrocketing again.
Anyhow, the point of showing this is to simply debunk the notion that houses always appreciate. In fact, there is no evidence that homes appreciate over a long period of time.
Sure, they can go up and stay up for a few decades, but there is no way to know when or if they will go up or down. So, to make broad stroke arguments when debating renting vs buying a house, we cannot rely on any form of appreciation.
5. Better Returns Elsewhere
Since houses don’t actually appreciate much, if at all, their returns are very low. You’d be better served putting your money into the stock market, S&P fund, or even other real estate investments.
There is a saying that real estate investors rent where they live and own where they rent.
That’s because houses are not generally good investments, but rental property can be a solid buy. So, investors often buy rental property and live in apartments.
Buy on Emotion, Not as an Investment
Buying a home is an emotional decision. You buy because you want roots, a family, a hometown, etc.
But, many people buy because they think it’s a good investment. While there are a ton of reasons you may want to buy a house, there is little evidence to support it as a good investment.
Instead, look at the reasons why you want to rent and compare it to why you want to buy, and you might find that renting actually makes a lot more sense for you.