Dave Ramsey Recommends Renting Instead of Buying in These 3 Situations

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KEY POINTS

  • The choice of whether to buy or rent a home has major financial implications.
  • Dave Ramsey recommends renting a property in certain circumstances.
  • If you're paying off debt, have a job that requires you to move often, or you need more time to plan, renting is your best option. 


Don't buy a home when renting would be a better choice.

When you're deciding where to live, there are two primary choices: Renting a property or purchasing a home of your own. People often have a preference for becoming a homeowner because rent can be seen as a "waste" of money since you aren't paying down a mortgage and acquiring ownership of the home over time.

But, buying a house is actually not always the best choice. In fact, there are three situations when finance expert Dave Ramsey says you would actually be better off renting than buying. Here's what they are. 

1. When you're still working on debt payoff

Since Ramsey has a strong anti-debt stance, it's not a surprise that he suggests becoming debt-free before you buy a home. 

"You can hang out there with your cheap renters insurance, letting the landlord pay for all the maintenance, while you knock out that debt," he advised on the Ramsey Solutions blog.  

But while this advice is sound if you have high-interest debt such as credit card debt, it doesn't always make sense to wait until you're completely debt-free to buy a property. It can take a long time to pay off some larger loans, and you could miss out on property appreciation and equity building in the interim.

If your debt is affordable, you have a set payoff schedule, and you are otherwise financially prepared to become a homeowner, there's no reason to put off the process any longer just because you still owe a little money. 

2. You have to move for your job

Moving isn't easy as a homeowner, and there are high costs including real estate agent fees, transfer taxes, and other closing costs you'll typically have to pay. You also have to hope someone comes along at the right time to buy when you're ready to sell -- which isn't always the case.

"If you’re in the military or you don’t plan to stay long in an area, it’s smarter to rent." Ramsey said. "In most areas, you’ll need to stay in a house for two to three years to make buying worth the up-front costs."

Ramsey is spot on about this. And even if you're lucky enough to profit from a quick home sale, your taxes would be much higher if you sold after living in the home for at least two years. That's because of capital gains tax rules and exclusions

Ultimately, you will likely do much better financially if you hold onto your house for a while so property appreciation can cover some of your costs and so you're subject to more favorable tax treatment if you're lucky enough to sell for more than you paid.

3. You need planning time

Finally, if you're going through other major life changes, Ramsey suggests not buying a home for a little while and instead continuing to rent. 

"Buying a house is a long-term commitment," he explained. "As with any relationship, acting impulsively is never a smart move. So, if you just got married, graduated from college, or aren’t sure which neighborhood you want to live in, the smartest thing you can do is rent for a while. "

He advised waiting a year after these life upheavals and then making the decision about whether you're ready to buy.

If you listen to these three pieces of advice, you can rent a home when living in a rental makes the most sense for your situation. And you can always buy later once you settle in and are more financially ready. 

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