Think Renting Means Throwing Money Away? Think Again
KEY POINTS
- When you rent a home, you don't get to build equity in an asset that's yours.
- But there are other ways you can benefit financially from renting, which is why you shouldn't feel bad about it.
Paying rent isn't wasteful. And it could lead to other financial gains.
You'll often hear that when you rent a home, you're throwing your money away. The reason? Instead of using that money to pay down your own mortgage, you're helping to pay a landlord's mortgage so they can eventually own a home outright, not you.
Now there are obviously benefits to owning a home rather than renting, like getting to build equity in your own property and potentially getting to sell it at a profit. Plus, when you own a home, you get to call the shots -- you don't have to follow a landlord's rules all the time or run the risk that your landlord will decide one year not to renew your lease.
But despite the perks of owning a home, renting is by no means a waste of money, either. And so if you're in a position where you'll be renting for a while, there's really no need to feel bad about that.
Don't beat yourself up for being a renter
When you spend money to rent a home, you're putting a roof over your head. And that alone means renting isn't a waste of your cash, just like paying for food isn't a waste and paying your copays at the doctor to take care of your health isn't a waste.
You can't expect every dollar you spend to be an investment. We all have expenses in life, and that's perfectly okay. And if rent happens to be one of yours, there's really no need to feel bad about that.
Plus, in some ways, renting could actually benefit you financially. Let's imagine that in your neighborhood, it costs $2,000 a month to rent a comfortable home, but it would cost $3,000 a month to own one between your mortgage payment, property taxes, homeowners insurance, and maintenance. Perhaps by not spending that extra $1,000, you're able to do something useful with it -- like invest it.
In fact, let's say you decide to rent a home for three extra years, during which time you save $1,000 a month, or $36,000 over three years. If you then invest your $36,000 for the next 20 years, sit back, and do nothing, you might grow that $36,000 into about $168,000, assuming your investments generate an average annual return of 8%. (That's a bit below the stock market's average, so it's a reasonable assumption for a 20-year period.)
Now granted, it may be that by owning a home, you'd also gain $168,000 in equity during that time. The point, however, is that in many cases, it's less expensive to rent a home than to own one. And if you take your savings and put that money to work, you might benefit your financial situation quite a bit.
Homeownership isn't for everyone
Although it's frequently said that homeownership can lead to added stability, it's more than possible to be secure financially as a renter. Besides, affordability aside, some people just don't want the responsibility of owning a home.
If you don't enjoy mowing the lawn or tending to maintenance items, and you're not very handy, then you may decide that owning a home is a hassle you'd rather not deal with. And in that case, it could pay to keep renting even if you're easily able to afford a place of your own.
Our Research Expert
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