It's a question that has vexed many renters throughout history: Should I buy a home instead? Am I being dumb by paying rent for all these years, with little to show for it? I'm familiar with the self-interrogation because I participated in it for many years myself.
This question was posed on our Buying or Selling a Home discussion board recently, by a Fool Community member named Knoxymama. She said:
"I'm posting because I just received notice that my rent will be going up $200 per month. I live in Southern California and will be paying $1995/month for a [two bedroom/one bath home] a block from the ocean. I absolutely love where I live -- I adore my neighbors -- I live in a wonderful neighborhood. But I'm really starting to consider buying at this point. I don't think I'm necessarily ready financially -- but maybe you can help. I just feel like the amount of rent I'm spending is getting a little out of hand."
She went on to add some details, such as her income and savings, and then noted that given the cost of housing in her region, she can't afford a 20% down payment without dipping into her retirement savings, which she doesn't want to do.
When faced with this kind of question, I often point out that renting does have its benefits, in certain situations. For example, if you're paying $1,000 per month in rent, and a mortgage would cost you $1,500, you could argue that the money you're saving can be invested elsewhere, such as in stocks. If you do well enough in your investments, you won't have been pouring all your rent money down the drain for nothing.
Also, rent does buy you something -- a roof over your head, albeit a temporary one. And all the time you're renting, you're not paying for maintenance and repairs for a house, nor home insurance premiums, property taxes, or interest on a mortgage. So while home ownership does have substantial rewards, opting to rent isn't always crazy.
Of course, one of the great things about hanging out in Fooldom is that there are always plenty of opinions and different points of view offered. Here are some of the responses Knoxymama received (read the entire discussion, if you want):
- Ptheland pointed out that for what she's getting, in her location, her rent is a good deal: "So take that $4,000 a month you'd need to buy a comparable house, subtract off the $2,000 per month you're paying in rent, and invest the difference."
- DeltaOne81 added: "While some may consider rent 'throwing money away' (if you define that as money you won't see again), then you also need to consider most of the costs of ownership to be throwing money away. Interest, property taxes, insurance, real estate commission, extra utilities, repairs and maintenance are all 'throwing money away' as well -- if that's how you're going to define it." He added that she might try to negotiate a lower rent increase.
- camtred explained that he and his wife live in the same area and let themselves be pressured to buy a house: "Bottom line -- we hated it. Neither of us was really interested or prepared for dealing with the homeowner stuff-spending every weekend at Home Depot, cleaning out gutters, discussing the tile for the floor, etc. was really not our thing. We also had moved to what felt like to us a very isolated location far from the lively area we so enjoyed." They sold the house after two years and moved back to their old neighborhood.
- possum2000 added: "Let me throw out one other wild idea: have you asked the owner of the house you currently rent and love, whether he has any plans to sell it? Now, or in the future? You never know, maybe he has been toying with the idea but hasn't told anyone yet."
- OneupOnedown had a good idea and an important reminder: "Another alternative is to consider a two-year lease, to lock in the $200 increase this year and avoid another increase next year. And if you haven't already done so -- do you have renter's insurance that includes the cost of setting up your business elsewhere?"
If you're interested in homebuying and homeselling issues, visit our Home Center, which features lots of money-saving tips. You might also want to check out these articles, especially if you'll soon be buying a new home:
- Buying a House Is Easy!
- So You Want to Be a Landlord?
- A Mover's Survival Kit
- 10 Things You May Not Know About Mortgages
- 10 Home Enhancement Tips