If you’re not in the position to be able to (or even want to) buy a home, you may have heard that renting is just as good as burning your money. But it’s not a fair comparison.
Here’s how you can make staying a renter work to your benefit financially.
Take advantage of pandemic prices
At the onset of the pandemic, rent in expensive cities like San Francisco, New York and Seattle plummeted. While prices are starting to even back out, they’re still significantly lower than they once were, according to Apartment List, a real estate data site.
As a renter, you can use this to your advantage. Working from home is sure to continue for some time and people are flocking to mid-size markets and smaller towns for more space.
If you want to keep renting in the city, now’s the time to lock in a lease at a great price — you may even be able to negotiate with your current landlord for an even better rate.
Misconceptions about renting vs. owning
You’ve probably heard that renting is basically throwing your money out. Or: No, no, owning a home is the only investment worth making.
But those assertions rely on a few shaky assumptions:
- That you’re guaranteed to make money off of your home.
- That other investments wouldn’t make you as much or more.
In either situation, that’s not always the case.
No sure thing
In fact, a report on homeownership in Business Review with the apt title, “American Dream or American Obsession?” shows that the actual rate of return on U.S. real estate between 1975 and 2009 was below 0%.
What does that mean? People generally lost money on their home investments.
And don’t forget that owning a home also involves a number of non-recoupable costs like mortgage insurance, homeowners insurance, and property taxes. And when something breaks down, you’ve got to fix it yourself instead of simply calling the landlord to replace it.
All that that adds up and you’ll never see a return on those investments.
There’s more to life
Finally, the premise that owning is better than renting also assumes that homeownership is your No. 1 priority, without taking into account other goals you may have to spend your money on or what you’d like to do with your life.
If you don’t picture yourself repainting the ol’ white picket fence every spring, there are plenty of other enriching things you can do with your cash.
Other ways to grow your money
When you’re paying a reasonable amount in rent, it frees up all kinds of money for other applications that can be just as financially worthwhile as owning your own home.
Here are a few.
1. Invest it.
Flipping back to the study on the housing market between 1975 and 2009, the stock market offered average returns of 3.375% after taxes and inflation during those years. That’s a big difference in profit.
And now, revolutionary investing apps have made trading more accessible to new investors. You don’t have to have thousands of dollars to play the market — some apps allow you to invest with your spare change.
2. Save it.
If you want to grow your money and you already invest or you’re risk-averse, you should consider a high-yield savings account. This type of account can pay upwards of 200 more times than your standard savings account.
Whatever you want to put your money aside for, whether that be an emergency, vacation savings or for a big purchase, a high-yield savings account can be the perfect place to keep your cash safe and working for you.
Different accounts may have minimum balances and interest rates vary. You’ll want to do a little research to find an offer that works for you and your financial goals.
3. Pay off debt.
Credit is convenient, but interest is a killer. If you’ve been relying on your plastic through the pandemic, you’re probably piling up plenty of expensive interest by now.
When the weight of your debt is starting to become seriously burdensome, it may be time to consider a lower-interest debt consolidation loan. By dropping all your balances into this single loan, you can make your debt easier to manage and even pay it off sooner.
If consolidating all of your debt isn’t an option, make sure to focus on your highest interest loans first. And don’t be shy to make extra payments when you can afford it.
4. Shop around for deals.
Meanwhile, living within a budget doesn’t have to feel like a punishment. With some creative savings techniques, you don’t have to completely sacrifice your lifestyle. Try calling up your cellphone provider to downgrade your expensive data package or cancel your extra streaming services.
Download a free browser extension that will instantly find you the best deals and coupons whenever you shop online.
Finally, make sure you get the best price on your renter’s insurance by bundling it with your auto insurance.
5. Put it towards something meaningful.
Or maybe you want to go back to school. Even if you haven’t got all the funds upfront for a college program, a student loan at a competitive rate can help make your dream come true without costing you all your savings now and in the future.
“But owning a home is my dream”
If your heart is set on becoming a homeowner, you’re not necessarily destined to become house poor.
Just make sure you follow these tips to make sure you come out of it in the best financial position:
- Get the lowest possible rate on your loan. The best way to save on your mortgage is to shop around for the best offer. An interest rate just 0.5% lower can save you tens of thousands of dollars over the life of your loan.
- Save on homeowners insurance. Homeowners insurance is a must, but overpaying is not. Like with your mortgage, shopping for rates is your top option for saving hundreds of dollars on insurance every year.
- Make a plan to pay it off by retirement. When you’re coming up with your savings plan for retirement, you don’t want to still be paying your mortgage — especially if your house is going to account for a chunk of your investments. Be sure to keep this goal in mind when you’re budgeting for a home and applying for a mortgage.
More: Hiring a Tasker can make errands and chores a breeze. Check out TaskRabbit and make sure to use the promo code NEW10US to get a $10 bonus off your task.