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Buying a home is definitely a large investment. There are a lot of things that should be thought about, but what if renting your home is actually a better investment for you and your family? And what if buying your next home is clearly the better and wiser choice?

We bought our house when we were very young. We were 20 and had rented a house for a little over 2 years before, but knew we were ready. Buying a house was nearly the same amount as renting an apartment, and it was actually CHEAPER than renting an actual house in the area. ┬áLuckily our house is worth nearly the same amount of what we bought it for a couple of years ago and hasn’t bit hurt too badly by the housing market.

However, it did hurt some areas of our lives in that dreams of traveling constantly were definitely put on hold. We do wish we would have waited a little longer, just to find the perfect house instead of being rushed by our lease being up.

Here are some factors which should be considered:

How long do you expect to live there?

How long do you think you will stay at this residence? If you are going to buy a house, it is generally said that you should try and live there for around 5 years or longer in order to make it valuable and worthy as an investment. If you are only going to live somewhere for a couple of months or even just one year, then renting is probably a better bet. This is because the cost of buying and selling would be too high if you don’t live i n a house long enough.

If you buy a house and don’t expect to live in that city long, it can also hurt or delay your plans. There is a lot less flexibility if you want to switch jobs or anything else. If you want to travel the world, then a house might hold you back because you will always have that mortgage to pay (which means you would have two residences to pay for at once).


Where I live (the Midwest), the cost of buying your own house and renting an apartment are nearly the same. The cost of living and housing is very cheap in the Midwest, which makes buying your house almost always a better bet.

Of course there are cheap apartments, but when you are comparing buying versus renting a home that are similar, then that’s where you might be able to see the value in buying instead of renting.

However, as we all know, there are many areas in the world where the cost of housing is very high. A house here in the Midwest might be very nice and big and only cost $250,000. Whereas this same house might cost $800,000 or more in a different area such as Los Angeles.

All costs should be thought about when you decide to buy a house. Will you be able to afford it still if something goes wrong? Something such as a furnace might cost over $5,000 to fix. Then there is also the roof, mowing the lawn, fixing broken windows, repairing driveways, and so on. The list of possible maintenance is endless.

The other costs included are home insurance and property taxes as well. Our property taxes are over $200 per month (we pay it annually though), so it definitely adds up quickly.

If you rented instead, then most of these costs and maintenance would just transfer to your landlord and the worries of something breaking would not be yours.

Would you rent or buy your next home?

What are your reasons?

Rent or Buy - Your Choice!       I recently had a friend comment that renting is “throwing away money”. This is a common misconception because home ownership has been touted as the best path to building wealth and a great decision for everyone. But the truth is that renting isn’t really as bad as some would have you think. In fact, it can be the best choice for many people – it all depends on your situation.

       But specifically, I want to look at the idea that paying rent is just throwing away money. The unspoken assumption in that idea is that once you buy a home you’re no longer throwing away money. This simply isn’t true. Here are five ways you throw away money when you buy a home.

1. Mortgage Interest

       Assuming you get a mortgage when you buy a house, like most everybody does, you’re going to have mortgage payments to make. Part of those payments will go toward the principal (what you paid for the house minus your down payment) and part will go toward interest.

       The part of your mortgage payment that goes toward interest is just as much “throwing away money” as rent payments are. It’s money you’ll never get back and does nothing to improve your net worth. And on an average 30 year mortgage, it’s going to take you about 16 years before you’re paying more toward your principal than you are toward interest.

       Granted, this isn’t as big of an issue later in your mortgage and it doesn’t matter at all once it’s paid off. But don’t underestimate just how much money you’re going to be throwing away on mortgage interest – especially at the beginning.

       And while we’re on the topic of mortgage interest, let me just add that the mortgage interest tax deduction isn’t as good as you think

2. Homeowner’s Insurance

       Homeowner’s insurance can cost anywhere from about $600 a year to $1,200 a year or more. By comparison, my renter’s insurance policy costs about $110 per year and it’s some pretty good coverage. So you’re looking at an additional $500 to $1,100 or more in insurance premiums because you’re covering the entire value of the home. (Renter’s insurance is mostly just for liability and contents of the home.)

       Part of the money that’s “thrown away” in rent goes toward the insurance coverage the landlord buys for the home. So make sure you take this into account when comparing the difference between renting and owning.

3. Property Taxes

       Own a home? Be ready for your property taxes, which can be anywhere from 0.25% of the value of your home up to 3% or more. The national average was around 1% the last time I looked. So for a $150,000 to $200,000 home, you’re talking $1,500 to $2,000 a year in property taxes.

       Renters don’t pay separate property taxes on the home they’re renting. Those taxes come out of the rent they pay, but renters never see a separate bill for property taxes owed.

       And no, you can’t refuse to pay your property taxes. Do so and you can say goodbye to your home.

4. Home Maintenance and Repairs

       As a homeowner, you’re completely responsible for all maintenance and repairs on your home. These costs are going to vary quite a bit based on each situation, but I’d say a reasonable estimate would be about 1-2% of your home’s value each year. So for our $150,000 to $200,000 home, we’re talking about another $1,500 to $4,000 a year in costs. Maybe you could get away with less, but you’re looking at a minimum of $500 to $1,000 per year.

       Renters? Yeah, they don’t have to deal with these costs. They’re the responsibility of the landlord. And while you could have a landlord that doesn’t take care of the property, it’s pretty easy to move somewhere else. Which brings me to…

5. Higher Costs for Moving

       Moving tends to be much more of a hassle for homeowners than renters. It can take some time to sell a home – time you may or may not have before you need to move or start paying on your next mortgage. On top of that, you’ve got costs associated with selling that come out of your final price (commissions, inspections, and sometimes closing costs if you’re in a real hurry). Some of these costs can be reduced by doing it yourself (for sell by owner) but then you’re looking at more time and effort on your part (and you’ll still want to get a real estate attorney).

       Renters have it pretty easy here. Assuming you’re at the end of your lease, it’s no big deal to find another place and move. And if you’re not at the end of your lease, it’s probably going to cost you less to break the lease than it would cost a homeowner to sell their house.

Repeat after me: “Renting is not always throwing away money.”

       It should be clear that there are plenty of ways to throw away money if you own a home – enough ways to make it worse than renting. That’s the case for me, at least, and that’s why I plan to rent for quite a while longer. I’d need a phenomenal deal to make buying a better choice than renting at this point. And it may be the case for you as well. The least you could do is take some time to play with a rent vs. buy calculator and see how the numbers work out for you.

       I should add that I didn’t even discuss the fact that many people tend to overbuy when they become homeowners. And did I mention the desire to remodel, upgrade, paint, redecorate, landscape, and on and on and on? Home ownership isn’t quite the great financial asset many make it out to be.

(photo credit: Phil Sexton on Flickr)

This post was included in the Carnival of Personal Finance.

This post was included in the Festival of Frugality.