Are There Situations in Which It Might Be Better to Rent?

For decades, we have assumed that the American Dream is to buy a house. Additionally, we have been, as a society, convinced that home-ownership is the way to go when it comes to financial security and wealth building. Some of that feeling still remains, but some are increasingly asking the question: Might it be better to rent?

Depending on where you live, your financial goals and other considerations, it might actually make more sense for you to rent your home, rather than buy. These thoughts have been swirling around in my head even more recently as I face the possibility that I will have to try to sell my house sometime over the course of the next year.

The Case for Renting

There are a number of reasons that renting might make more sense for some people. Arguments in favor of buying look at the possibility that the home will appreciate, and point out that you can deduct the interest you pay on the mortgage — and your property taxes — on your Form 1040. However, there have been different analyses that indicate that, in real terms, the average home appreciation over time (and across the country) is closer to the rate of inflation. Of course, local markets vary, and you might find that your home does indeed appreciate at a higher rate than the national average.

Instead of buying, though, some recommend that you put the difference into other investments. Over the long haul, by the time you pay out interest and taxes (even with the mortgage deduction), make repairs and engage in general maintenance, many times you are lucky to break even — even if your home doubles in value during the 20 or 30 years you live in it. There is an argument for putting money into better yielding investments, rather than into a home.

For me, though, the idea of renting has appeal for a few other reasons:

• More house for your monthly payment: In many areas, you can get more house for your monthly payment if you rent. Right now, we pay more per month than when we were renting, and our house is smaller. Sometimes I’d like to be renting, have the extra space, and put the extra money toward retirement.
• Not responsible for maintenance and repairs: We moved into a new construction home, so repairs aren’t a big deal yet. But we were a little surprised to realize that we needed to buy a lawnmower, take care of maintenance items and spend money on keeping our home in good repair. When we rented, someone else always took care of shoveling the snow and fixing the air conditioner. This became painfully obvious when we had to pay for everything associated with a flood in our basement.
• More freedom to move: We can’t just up and move. Well, I suppose we could walk away from the house, but strategic default is not something I’m really into right now. If my husband can’t find a job here, now that he’s done with school, we’ll have to move. It’s easier to get out of a lease — especially if you are month to month — than to sell your home. Especially in a market that will require that we sell for $20,000 to $30,000 less than we bought the home for.

While I like my home, and I am reasonably glad to have it, sometimes I think that continuing to rent might have been the better choice. I’m not sure we were ready to buy. What do you think? What are some of the pros and cons of renting instead of buying?