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9 Reasons You May Want to Rent Instead of Own

By Chuck Saletta - Jul 30, 2022 at 7:10AM
Two adults and a child under a tiny roof in a home.

9 Reasons You May Want to Rent Instead of Own

A place to live or the place to base your life around?

We all have to live somewhere. As a general rule, your options on that front are to either buy your own place to live in or rent a place from a landlord. Between those two options, owning a home has long been considered part of the American Dream, but the reality isn't always as good as that dream envisions it to be.

Often, renting ends up being the better option for many people. These nine reasons you may want to rent instead of own showcase many of the drivers behind why that might be the case.

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Cash swirling down drain opening in the floor.

1. It's expensive to buy and sell a house

Real estate commissions often end up being around 6% of the price of a house, and that's just one of the charges you'll end up paying to become a homeowner. Between inspections, cosmetic updates, nuisance repairs, transfer taxes, and other friction costs, you'll shell out lots of cash on both sides of the homebuying and selling process.

If you're looking at homeownership through a financial lens, you must include those costs in your ultimate ROI calculation. If you're looking at it through a lifestyle lens, those are costs you have to pay that you may not really get much personal benefit from.

ALSO READ: Buying a Home Just Got More Expensive, and Here's Why

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A pair of glasses and a magnifying glass atop a document that says Insurance Policy.

2. Homeowner's insurance costs far more than renter's insurance

When you own your home, you have to pay to insure the property itself, as well as the contents you have within it. When you are a renter, your insurance bill is far lower because you don’t have to cover the structure.

Those higher insurance premiums are real costs of ownership that you’ll have to cover every year that you own your home. In addition, if your home value increases over time, those premiums likely will, too, because your premiums are likely based, at least in part, on the property value being covered.

ALSO READ: What is Homeowners Insurance and How Does It Work?

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A person making a home repair.

3. Maintenance and repairs are your problem as the homeowner

You will likely spend at least 1% of the value of your home ($1,000 per year per $100,000 value) -- and probably more -- maintaining your home. On top of that, roofs leak, windows break, basements flood, and other sorts of damage happen to virtually every home from time to time.

If you're a renter, you address most of these problems by calling your landlord, and that's the end of your involvement with them. If you're a homeowner, you must repair them or pay someone else to do it for you.

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One hand passing a wad of money across a desk to another hand.

4. You have to borrow even more when moving

In addition to the high costs of buying and selling a home already discussed, you may get stuck owning two houses simultaneously for at least a little while during a move. Those costs can add up, especially if you have to tap the equity in your old home to cover the down payment on your new home and, thus, are dealing with a bridge loan.

Normal financing is expensive enough, but if you have to borrow money temporarily on top of two regular mortgages, the charges and interest rate can be all that much higher. Those costs add up, and if your old house doesn’t sell quickly, you can be on the hook to refinance, too, when the bridge loan expires.

ALSO READ: Buying a Home? Dave Ramsey Says to Avoid This Loan at All Costs

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A relocating family is moving boxes into their new home.

5. You think you'll move frequently

All the friction costs of buying, selling, and mortgaging a property add up, and the more transactions you have due to frequent moves, the higher your total overhead costs will be. In contrast, if you move around the time your lease expires, the major friction cost you'll face when renting will be moving your stuff from one place to the next.

If you're in a career that requires you to move frequently, or if you believe job-hopping provides your best chance for advancement, renting can become a much more attractive option than owning.

ALSO READ: 7 Hidden Expenses You'll Face When Moving

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Two people smiling while gardening.

6. You place a high value on your free time

In addition to maintenance and repairs, homeownership usually brings a seemingly endless array of time sinks. From yard work and painting to insect control and appliance upkeep, there's virtually always something requiring maintenance in or around your home.

Those problems don't go away just because you're renting, but they do become your landlord's problems. All you need to do is let your landlord know there's an issue that needs attention, and they should take care of it in a reasonable amount of time.

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Toy houses atop stacks of coins that get higher and then lower.

7. You're worried that housing prices might fall

In the aftermath of the COVID lockdowns, housing prices skyrocketed. Unfortunately, the price of virtually everything else has also risen due to generations-high inflation rates. Those price hikes forced the Federal Reserve to aggressively raise interest rates, which increased the cost of getting a mortgage. Add to that the risk of a recession, and housing prices could be due for a decline.

With mortgage rates rising and general inflation impacting how far people’s salaries can go, there’s a very good chance home prices could fall from their recent highs. While it’s generally not a great idea to make key lifestyle decisions based on speculation of future asset prices, it is always a smart move to recognize the risks and tradeoffs of major financial moves. Given the current state of the economy and housing market, being careful is certainly warranted at the moment.

ALSO READ: Worried About a Housing Market Crash? The Smartest Real Estate Investors Know These 3 Things.

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Graphs superimposed on hundred dollar bill.

8. You want to invest more aggressively

Buying, maintaining, and financing a home takes a lot of cash, so being a homeowner will likely require more cash and cash reserves than being a renter. Once you put your cash toward your home -- or emergency savings in case something happens to your home -- it is not available for any other purpose, including investing.

So, if you would rather invest that extra money you would otherwise be saving to buy or own a house, being a renter can be a great choice. The difference can eventually add up to quite a nest egg, especially if you can continue investing that money long-term.

ALSO READ: Should You Invest More Aggressively for Retirement?

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Silhouette of someone pushing giant letters spelling the word Debt off a cliff.

9. Your credit isn't all that great

Unless you're one of the few capable of paying cash for a house, the borrowing costs you'll pay for your mortgage depend heavily on your credit score. The lower your score, the higher the rate you'll pay -- and the more your monthly costs of ownership will be throughout the life of your mortgage.

If your credit isn't all that hot, you'll likely be better off working to clean it up before buying a home. Not only will it keep your costs of home ownership down, but it will also help you be better prepared for those unexpected costs that all homeowners face from time to time.

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Two people stand in front of a house with a foreclosure sign.

"American dream" or not, there's no need to buy a house

Homeownership has long been considered part of the American Dream. Despite that, these eight factors show there are perfectly good reasons to put that dream on hold -- or even seek out a different dream in its place.

Whether you choose to rent or own, remember there are tradeoffs involved with both options. Make your decision with eyes wide open and a nod to those tradeoffs, and you’ll put yourself in a much better position to address the curveballs that life throws your way.

Chuck Saletta has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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