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Why own when you can rent?

By Trulia | Published: Oct 14, 2009 | 9 Comments

If you're debating whether to sign a lease or sign a mortgage, you've likely heard this old adage: Why rent when you can own? For a long time, owning appeared the more promising option for fence-sitters. Home ownership in America rose to record levels in recent years, amid an environment where mortgage lending rules were generous, homes were appreciating rapidly, and consumers were thus motivated to purchase property because lenders made it easy and appreciation made the potential for gains clear-cut.

But starting in 2007, home price appreciation reversed in many markets and slowed in others, reducing appreciation and equity as an incentive to own. Separately, mortgage lending rules grew more conservative, meaning many would-be buyers couldn't qualify for best-advertised rates. Add to that the influx of harder-to-purchase distressed property (foreclosures, short sales) that are now part of America's for-sale home inventory, and the route to owning is less clear-cut than before. Yes, the government has been offering tax credits to first-time buyers to make buying inexpensive and stimulate the economy. But for some people, renting and taking a watch-and-wait attitude may make more sense than moving forward with a buy.

Trulia's Mortgage center offers a calculator that you can use for an objective opinion on whether you can afford to buy or whether renting is better for your particular situation.

Here are five common reasons why renting is better than buying

  1. Your finances are fragile

    If you haven't been regularly employed in the past two or three years, have a history of paying bills late, long-term debt (like car payments and other loans), lack of savings for a down payment, and live paycheck to paycheck, chances are you're better off renting rather than owning. Renting provides an opportunity to control housing expenses (you pay the rent, but the landlord handles costly maintenance and repairs) and lets you build your savings and credit profile. Got a below-average credit score? Consider this: Landlords may ask you for extra deposit due to your score, but they can't charge higher rent because of it. Mortgage lenders, however, can charge you higher interest rates on your monthly home payments due to your low score.

  2. Your life circumstances are in flux

    If you're not sure you can stay in one place for more than four years—a minimum time recommended by some to break even on the purchase and sale of a home—then renting may make more economic sense than owning. On the personal front, if you suspect your work might ask you to relocate or you're seeking a new job, the flexibility of a lease may be preferable to owning and having to sell (or rent out) your property from afar. If your financial circumstances are secure but big changes are on the horizon (divorce, graduate school, having a child, sending a child to college), renting can provide predictable and lower housing costs than owning over the short-term, until your new financial scenario is clearer.

  3. The rental market is good

    In many markets around the country, rental prices have dropped. In some cases, builders are converting new construction that failed to sell or apartments slated for condo conversions back into rental properties, making premium rentals available. Also, some landlords will offer concessions—free utilities or parking, a months free rent on a one-year lease—in an effort to secure long-term rental contracts. All of this favors renters.

  4. Your local real estate market is still unpredictable

    The good news about the bad market, some say, is that home prices are low and affordable. But the bad news is that timing when to buy into such a market is difficult: No one wants to buy a place and then watch their equity drop as prices continue to stumble, and no one wants to buy a place only to see zero appreciation over the next five or ten years. In some markets around the United States, builders have over-produced housing—meaning there's a lot of inventory unsold or yet to be completed. Suburban "ghost towns" and cranes towering over stalled condo towers and office buildings are signs your market hasn't begun a rebound.

  5. You're not sure you're ready for the responsibility of homeownership

    Homeownership calls for financial responsibility—and requires savings for emergencies that don't tend to come up when you rent. You become the landlord when you own, which means you're on the hook to pay for major and minor repairs, grapple with your insurer, or call up warranty programs. Maybe you can only afford to buy a "fixer," meaning you'll have to learn to work with contractors or learn to take a DIY approach. Or perhaps you can buy a new condo, but are nervous about "special assessments" and extra homeowners association dues that might eat into your savings. Aside from financing your property, owning a home also requires time—and that's what many renters can't spare. If you travel frequently and the thought of maintaining your landscape and swapping out furnace filters sounds like too much, or you dread the thought of hiring contractors or other helpers to do the work you can't, renting may be a wiser option.

Comments

By Gita Bantwal ABR/CRS/SRES/CDPE,  Wed Feb 10 2010, 08:59
Good tips for renters thinking of buying. I usually ask them if they think they have job stability and is there a chance they may be transferred or laid off.
By Fran Rokicki,  Sat Oct 23 2010, 14:52
Our rental market here in Connecticut is high. Property taxes and insurance costs to the owners, cause the higher rental amounts. With the interest rates at a 30 year low, it is actually, less expensive to own a home, than it is to rent that same property. By hundreds of dollars! Never thought we would see that!

If you are interested in a home in Connecticut, please give me a call. I will be happy to serve your real estate needs in this market.
By Shawn Rosa,  Tue Dec 13 2011, 13:51
renting is the preferred option when you cant be sure that you will be in the same geographic location long-term
By Valen Smith,  Wed Mar 6 2013, 00:08
If you are new to renting and do not have a rental history, have your parents sign or co-sign the rental agreement. The agent and landlord now have a better indication of who will be held responsible for any transgressions. In the case that you do not have a rental history, sometimes older style homes with short-term leases can be a great source of rental references.
http://northenloans.ca/short-term-loans.html
By Voices Member,  Mon Nov 11 2013, 11:27
Thanks for sharing. I would really love to learn more about getting rentals in Fort Mcmurray. I'm a student in college and I'm getting married. I want to make sure that I can afford my new home. http://www.riverparkglen.ca/FortMcMurrayApartments.aspx
By Kevin Richey,  Wed Dec 25 2013, 09:46
Good thoughts about renting. Sometimes renting is the only option. As a real estate agent, this is good to keep in mind. If we are truly looking out for our clients, we may need to guide them toward renting. It may the best option for them at the time.
By Instantrenters,  Mon Feb 3 2014, 23:34
Renting is a good option to go with. As rental rentals are touching the highest skies, you can expect positive long term cash flows.
If you are looking for the most potential rental properties in Ancala, then visit http://www.instantrenters.com
By Rodhe Stevens,  Tue Jun 3 2014, 11:05
Great insight! I am still in school so my living situation/"life circumstances" are very much in flux. I prefer to rent cause it is more in line with my lifestyle. Also, though owning your home was everything to my parents generation it does not seem to be the same for mine. My girlfriend just moved up to Fort Mcmurray for a good job and she could probably afford to get a small home but renting allows her freedom to leave for better opportunities and with businesses outsourcing I don't really see why we can't be ready to move our skills to somewhere better for us. http://www.riverparkglen.ca/FortMcMurrayApartments.aspx
By Jim Cramer,  Sun Jun 29 2014, 05:38
A lot should go into your decision on Renting vrs Buying and this is a good list to get you started. Some buyers don't consider all the things they should before a purchase.

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