You might have heard the old adage “renting is throwing money away.” It seems like common sense. You don’t buy anything when you rent, but you keep to keep the house you buy. However, nothing could be further from the truth.
Photo by Charleston’s The Digital.
As personal finance blog Afford Anything breaks down in massive, incredible detail, buying a home is a lot more complicated than “Rent, except you get to keep it”. Not only are there major additional costs that you’ll be paying for the rest of your life (like repairs, renovations, and property tax), but for the first several years of your mortgage, you’re barely even gaining any equity!
Should you keep renting? Is renting better than buying? Or should you purchase a home? Is buying the better choice? Your answer is going to depend on a massive number of factors, including:
- The local price-to-rent ratio.
- How long you’ll live there.
- Your alternative investment options.
- Your assumptions about inflation and investment gains.
- Maintenance, repair, insurance, property tax and capital expense costs.
- The rate at which rents rise.
- Et cetera, etc., etc.
You get the picture. My goal is to impress upon you — once and for all — that this myth that “renting is throwing money away” is wrongheaded. In fact, it’s dangerous. It oversimplifies a life-changing, six-figure decision. It’s probably caused thousands (or millions) of people to buy houses they later regret.
The entire piece is long, but should be mandatory reading before making the decision to buy versus rent. While it’s true that you’re buying an asset when you purchase a house, it’s an asset that barely keeps pace with inflation, and you lose the opportunity to make other investments. Not to mention, renting is underrated. Even if you think you’ve considered this topic top to bottom before, you’ll likely find some information you hadn’t thought of before (like a detailed explainer on the price-to-rent ratio) that you hadn’t thought of before.