Take Caroline, for example. Let’s say that she’s 55 and wants to rent instead of own. She likes the flexibility of being able to move when she wants, and she really loves not having to worry about home maintenance and repairs. The problem is that her family and friends think she’s a huge failure, and they’re pressuring her to purchase a home as soon as possible.
Should Caroline give in and call a real estate agent? Or are her loved ones wrong and should she stay the course?
Renting may be the right move in some situations
Caroline’s decision to rent isn’t unreasonable, and it may even be the best choice in some situations.
“Renting or owning a home is truly a personal decision. It depends on your finances and budget,” Domenick D’Andrea, a financial advisor and co-founder of DanDarah Wealth Management, told Moneywise.
“I would never look at not owning a home as you being perceived as a financial failure,” D’Andrea said. “To me, it’s better to understand your budget and what you can truly afford before either purchasing or renting.”
If saving up a down payment or covering the monthly cost would make you house-poor or force you to devote too much of your income to housing, then owning isn’t the best choice. After all, renting is cheaper than buying in virtually every metro area in the United States, according to Realtor.com. If Caroline lives in one of these areas, renting and investing the amount she saves on housing costs makes good sense.
John Rafferty, partner and investment advisor representative at Solomon Financial, told Moneywise that renting could also save Caroline money in other ways. “If you don’t own a home, you avoid having to pay for maintenance, taxes, and homeowner’s insurance,” he said.
He also pointed out that it’s important to consider life plans because if you expect your living situation to change in the next few years, committing to owning likely makes no sense. “Buying a home is not a short-term decision,” he said. “It may take five years to net back the price that you paid for your home, plus the one-time acquisition costs that you will pay at the closing. These fees can run from 3% to 5% of the purchase price.”
Renting isn’t throwing away money
While there are plenty of great reasons to rent, Caroline may have a hard time changing her family’s perception because of the strong ownership culture in the U.S.
