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Renters vs Buyers: 6 Reasons Why Renters Win!

Most people see buying a home as a part of the “American Dream”, well for most it’s become a nightmare.  Buying a home is pretty much the best way to throw your money away and here’s why.  Renters win because they have the flexibility that homeowners do not and after 30 years alone of paying interest to the bank, you’ve lost out on any potential monetary benefit.

You never truly own the home.  Even after paying off the mortgage, there’s still property taxes, HOA fees, home insurance and other mandatory costs which make buying a home a veritable money pit. You must consider every single penny that you spend in direct or indirect relation to the home.  5 years ago, real estate investors would only consider the purchase price and subsequent sales price to determine the profit made.  Nowadays with reduced and nonexistent equity, investors are looking at every penny to determine whether or not the deal is worth it.

  • Renters only rent.  No HOA fees, property taxes, home insurance, home repairs or any other cost usually handled by the landlord.   The counter argument here is that the landlord rolls all of these fees into the rent.  However, consider that while this may be true of some rentals, it is not of all rental.  In some cases, doing this drives up the rental rate which makes it unattractive to most renters.   Consequently, there are many landlords who eat the cost of extraneous fees as it is better to have someone in the unit than have it empty. 

 

There is no guarantee of a “permanent home” with home ownership.  As we’ve seen with the recession, should you lose your job and exhaust all reserve funds, you are out of luck and that home will be sold to the highest bidder.

  • Renters can usually rent for as long as the landlord will allow or needs a renter in the home.  If a renter loses a home, there’s the option to get a cheaper rental until things get better.  When you own a home, even if your financial situation changes, you must continue to pay the mortgage payment as agreed upon during closing.

 

Buying a home locks you in for as long as you own the home.  Think you’ll just sell it?  Fat chance.  Given that most homeowners who bought their homes in the last 10 years are underwater, good luck.  Though it isn’t impossible, the only chance of getting out is to strategically default or sell via short sale if you’re underwater.  Both options trash your credit since the originally agreed upon balance isn’t what the bank receives in the end.

  • Renters on the other hand are free to go at the end of the lease which can be month to month upwards of 2 years.  There’s also the option to break the lease with a fee paid which equates to 2 months or that may be waived if the renter or landlord is able to find someone to replace the renter.

 

Today’s economic conditions require a 20% down payment.  In some areas, this can be as much or more than $100k for a starter home.  Once you sink the money into the home, you don’t see it again unless you’re lucky enough to sell at a profit.  This is a gamble and unfortunately, many homeowners come out on the losing end.

  • Renters only need to put down the 1st month’s rent and security deposit. The latter is returned at the end of the lease term.

 

Home ownership is no longer an investment.  With the recession, this became a daunting reality for many homeowners.   Home equity became non-existent which meant kissing good bye the good ole “forced savings” theory.  For this reason alone, renters come out on top since the lack of an investment potential makes the argument that buying is more advantageous a moot point.

  • Renters in this case, just pay rent with no expectation of long term investment potential.

 

Homeowners are responsible for the cost of all repairs and upgrades.  This is self explanatory.  As a homeowner you are responsible for every single repair that comes your way, renters only pay for repairs that are a result of intentional damage or negligence.  Otherwise, the landlord pays for everything.

  • Renters don’t deal with repairs unless the resulting damage is their fault. 

If your still absolutely convinced that buying a home is a good idea, there is a new housing rebate you could take advantage of.  Homeowners can obtain the HST New Housing rebates you’re entitled to from government agencies. Whether this is your principal home or an investment property.

 
What’s your perspective on renting vs buying?  This is an age old debate that’s certainly changed it’s course over the last 3 years.  Which side of the fence are you on?  Renting or buying?

 

  • http://thebrokeandbeautifullife.com/ Stefanie @ brokeandbeau

    These days in NYC, renting seems to make the most sense. The cost of buying is outrageous. The monthly maintenance fees on NYC apartments alone are more than my rent- forget mortgage.

  • Shannyn

    This article may be applicable in many cities, etc, but certainly NOT in San Francisco! Thank goodness I own my home here. Even with all of the repairs, taxes, etc, that come with it.

  • Ronnie Whisler

    Total nonsense, if you loose your job, you much more likely to be able to pay your property taxes vs paying your rent. You generally speaking of mortgage vs renting, not actually ‘owning’ the home. This is nothing more than propaganda to convince others owning nothing is better, getting rid of as many monthly bills as possible and actually owning as much of your property as you can is the only real ‘win’. Everything from your car to your home to even getting rid of your monthly tv bill is always a better bet then drudging along with non stop monthly bills. Just ridiculous. Property taxes on a home for the year is some where in the neighborhood of one to two months of rent add in insurance and perhaps your talking three months of rent. The crap you find on the internet is astounding.

  • Von

    Coming from being both a homeowner (and currently a renter), I think the former is kind of overrated nowadays, especially w/ the state of the housing market. But overall, it really just depends on where you are in your life and situation.
    For me, renting right now is best. When I got divorced almost two years ago, I opted to simply rent for the time being, since I was still in transition & wasn’t sure exactly which city my daughter & I would end up in (not to mention I was ready to let someone else worry about repairs, lol!). Sure enough, we wound up moving to be closer to her school. Had I purchased something, I would have been stuck trying to sell it.
    I definitely plan on owning again in the future, but right now renting works well for me.

  • Tams

    There’s a few problems with this.

    Compare the following:

    Renting a house at 2,000 a month vs buying the same house with a 2,000 mortgage for 30 years. HOA doesn’t exist for this house, so it’s only insurance and property tax which depending on where you live could be much less. So let’s ignore them temporarily.

    For 30 years, you will have paid 720,000 for both. The different being as a homeowner you own the home and have it as a line of equity. So even if you didn’t sell it at full price, say you sold it for 600,000, you still wind up 120,000 ahead of renting, because that money is simply gone. Well, I suppose you’d get 2000 back for your Security Deposit.

    So yes, you might end up eating 120,000 in profit, but you still will have 600,000k in equity vs. 0 in renting. That’s a significant difference. One is still worth something. The other is just sending your money someplace where you will never get it back.

    The other argument is rent can rise as well. You of course have the benefit of being able to pick up and leave easier in those cases, or the landlord selling the place

  • AbigailP

    I think there are definitely advantages to renting. We bought a year ago, and the repair bills have been plentiful. And we’ll pour more in to improve the place. (Nicer toilets and sinks aren’t necessary, but I’ll be happier when we can replace them.)

    I think the problem here is that houses were seen as an absolute investment. A house is a place to live. One you can pay off and not have to keep paying rent on. And then you have something to leave your relative or whomever. Who cares what your house is worth, as long as you can pay to stay in it?

    All of that said, I take issue with the idea that you’re never done paying for a house. Compare the cost of property taxes and insurance (less than $200 a month for folks around here) to the amount of rent you’ll be paying in 10 or 20 years. Even with factoring in home repairs, there’s just no comparison.

  • http://www.mightybargainhunter.com/ mbhunter

     Buy, definitely. This market favors people with good credit ratings.

  • Cris1582

    Rent in my area is higher than my planned mortgage so renting is not an option unless I want to sacrifice my safety.

  • LD

    Ginger, you make several good points in your post, but I don’t think renters win and homeowners lose. When one makes the decision to purchase a home, if it is carried out with proper planning, education and saving, it can be one of the most rewarding experiences in life! I know people who bought during the short-lived era of no doc/no money down/fico score doesn’t matter/buy as much house as you want! Sadly, many of those people have since foreclosed on their homes. I also know people who worked diligently to improve their credit ratings and save for a down payment as well as an emergency fund, then they purchased modest homes in good neighborhoods. One of my close friends purchased her home last year and she told me “purchasing my first home has made me feel like I can accomplish anything.” Her eyes light up when she talks about her home. Her mortgage (including taxes and insurance) is more than $100 less than the amount she paid for rent for over 13 years.

    As Suze Orman teaches in “The Money Class” it is all about standing in our own truths. For some, renting makes sense, but I strongly believe if more people stood in their truths and learned to live BELOW their means, then this topic wouldn’t even be necessary. I really hate that we’ve gotten so far away from what our ancestors worked so hard for us and future generations to be able to achieve. I currently rent in Chicago and after one year of living in my current rental, I will have paid my landlord over $15,000.00. A part of me dies everytime I write my rent check out. lol!

    Bottom line…let’s do better as a country and go back to the good ole fashioned modest lives that made our parents and grandparents successful and happy…

  • Mrsfab

    I have a great home. It’s been on the market for almost 3 years. It’s in a suburb, great schools, but no luck selling. It’s been a real pain! I have a condo that I rent as I relocated. i love it!! No worries about repairs, great neighborhood. So far, I have owned a few homes and I have reaped no benefits. I don’t know if I will purchase another home.

  • MikeJMacco

    Your points are well taken. And the previous commenters have pointed out some good things as well. I will preface my comments by pointing out my bias. I’m a financial advisor as well as a Dave Ramsey FPU coordinator. That said, my comments.

    As us true with many things, there are advantageous ways and disadvantageous ways to do things. If a person was going to overpay for a home in an area with grossly inflated home prices with an adjustable rate mortgage and payments they can barely afford, home ownership is likely unwise. Moreso if that person intends on paying it over 30 years and thus will pay all of the interest associated with such a long amortization. This is how home-buying has been traditionally done. And this fiscal irresponsibility has indeed caused much harm. However, there is another way.

    My wife and I live in DePere, WI. (used to be in Chicago. Could never have bought a house there. $$$) in April of 2010 we bought our first house for $160k and 3.5% down with a 30yr FHA mortgage. We are on a cash budget and live below our means so we can pay extra on our debt. If we continue our current path, our house will be paid off in 2019 upon which we will pay $300/mo in property taxes and $80/mo in insurance (yes, it will increase somewhat between now and then.)

    We have been on both sides of this equation. And there is certainly a place for each. But as I’m sure many of the readers/posters here can agree with. The experience of renting is NOT the same as owning. I have a private back yard that I can landscape. I have a garage that I can work in. I have a basement that I can finish. And the rest of the house can be decorated/remodeled as we see fit. And I can play my music as loud as I want to. None of which was true when I rented. Certainly these are benefits that many are willing to pay a premium for.

    This is not to say that everyone ought to run out a buy a house. Only that it can be done well. And that the comparison is not simply quantitative. There are important qualitative factors that make this discussion a bit more complicated than this post acknowledges.

    But let’s come full circle. As a financial planner, I many times meet people who have a disproportionate amount of their net worth tied up in their home. In some cases, selling it and renting would likely be the best course of action. It all boils down to living within (or preferably below) one’s means.

  • @MikeJMacco

    Your points are well taken. And the previous commenters have pointed out some good things as well. I will preface my comments by pointing out my bias. I’m a financial advisor as well as a Dave Ramsey FPU coordinator. That said, my comments.

    As us true with many things, there are advantageous ways and disadvantageous ways to do things. If a person was going to overpay for a home in an area with grossly inflated home prices with an adjustable rate mortgage and payments they can barely afford, home ownership is likely unwise. Moreso if that person intends on paying it over 30 years and thus will pay all of the interest associated with such a long amortization. This is how home-buying has been traditionally done. And this fiscal irresponsibility has indeed caused much harm. However, there is another way.

    My wife and I live in DePere, WI. (used to be in Chicago. Could never have bought a house there. $$$) in April of 2010 we bought our first house for $160k and 3.5% down with a 30yr FHA mortgage. We are on a cash budget and live below our means so we can pay extra on our debt. If we continue our current path, our house will be paid off in 2019 upon which we will pay $300/mo in property taxes and $80/mo in insurance (yes, it will increase somewhat between now and then.)

    We have been on both sides of this equation. And there is certainly a place for each. But as I’m sure many of the readers/posters here can agree with. The experience of renting is NOT the same as owning. I have a private back yard that I can landscape. I have a garage that I can work in. I have a basement that I can finish. And the rest of the house can be decorated/remodeled as we see fit. And I can play my music as loud as I want to. None of which was true when I rented. Certainly these are benefits that many are willing to pay a premium for.

    This is not to say that everyone ought to run out a buy a house. Only that it can be done well. And that the comparison is not simply quantitative. There are important qualitative factors that make this discussion a bit more complicated than this post acknowledges.

    But let’s come full circle. As a financial planner, I many times meet people who have a disproportionate amount of their net worth tied up in their home. In some cases, selling it and renting would likely be the best course of action. It all boils down to living within (or preferably below) one’s means.

  • @MikeJMacco

    Your points are well taken. And the previous commenters have pointed out some good things as well. I will preface my comments by pointing out my bias. I’m a financial advisor as well as a Dave Ramsey FPU coordinator. That said, my comments.

    As us true with many things, there are advantageous ways and disadvantageous ways to do things. If a person was going to overpay for a home in an area with grossly inflated home prices with an adjustable rate mortgage and payments they can barely afford, home ownership is likely unwise. Moreso if that person intends on paying it over 30 years and thus will pay all of the interest associated with such a long amortization. This is how home-buying has been traditionally done. And this fiscal irresponsibility has indeed caused much harm. However, there is another way.

    My wife and I live in DePere, WI. (used to be in Chicago. Could never have bought a house there. $$$) in April of 2010 we bought our first house for $160k and 3.5% down with a 30yr FHA mortgage. We are on a cash budget and live below our means so we can pay extra on our debt. If we continue our current path, our house will be paid off in 2019 upon which we will pay $300/mo in property taxes and $80/mo in insurance (yes, it will increase somewhat between now and then.)

    We have been on both sides of this equation. And there is certainly a place for each. But as I’m sure many of the readers/posters here can agree with. The experience of renting is NOT the same as owning. I have a private back yard that I can landscape. I have a garage that I can work in. I have a basement that I can finish. And the rest of the house can be decorated/remodeled as we see fit. And I can play my music as loud as I want to. None of which was true when I rented. Certainly these are benefits that many are willing to pay a premium for.

    This is not to say that everyone ought to run out a buy a house. Only that it can be done well. And that the comparison is not simply quantitative. There are important qualitative factors that make this discussion a bit more complicated than this post acknowledges.

    But let’s come full circle. As a financial planner, I many times meet people who have a disproportionate amount of their net worth tied up in their home. In some cases, selling it and renting would likely be the best course of action. It all boils down to living within (or preferably below) one’s means.

    • Anonymous

      I beg to differ with this statement as it depends on the type of rental:

      “The experience of renting is NOT the same as owning. I have a private
      back yard that I can landscape. I have a garage that I can work in. I
      have a basement that I can finish. And the rest of the house can be
      decorated/remodeled as we see fit. And I can play my music as loud as I
      want to. None of which was true when I rented. Certainly these are
      benefits that many are willing to pay a premium for.”

      Actually, living here in the DC area I’ve seen many landlords and tenants enter into long term agreements whereby the tenant is allowed to make certain changes or improvements with the approval of the landlord at the tenants cost.  Our tenants have a private backyard that they landscape and a basement that they’ve made their own changes to as it already came finished.  They are long term tenants and the agreement is that they return the property back to us the way it was given to them unless we are OK with the changes made.  We visit the house quarterly to make sure that all is well with the property.

      As far as the comment about playing music-whether you own or rent you can play your music within city ordinance limits so that goes for everyone and does not limit based on whether you own or rent.  The police don’t come by and as upon investigating a noise disturbance whether you own or rent.

      This isn’t a discussion about living within your means but one about whether renting vs owning carries more financial benefits than the other.  For the people who are distressed now, 3 years after the recession began, it might be safe to assume that the economy has changed and many are underemployed and the homes that they bought when they were earning more money are no longer affordable.  That’s not living outside of your means that’s the economy tanking and those owners needing an out.  It can happen to anyone.

  • Anonymous

    Adding this link to our discussion here:  http://www.usatoday.com/money/economy/housing/story/2012-01-08/cnbc-renter-nation/52417592/1?csp=34money&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+UsatodaycomMoney-TopStories+%28Money+-+Top+Stories%29

    Key points:


    As for renter society, it is also being fueled by
    tight mortgage underwriting. Rates may be at record lows, but only if
    you can get them. In a paper released Wednesday, Federal Reserve
    Chairman Ben Bernanke noted, “Continued efforts are needed to find an
    appropriate balance between prudent lending and appropriate consumer
    protection, on the one hand, and not unduly restricting mortgage credit,
    on the other hand.”
    Until that balance is
    found, potential home buyers will stay on the sidelines, those sidelines
    being rental apartments. A new twist to watch, however, may be that
    rental nation will go single family.
    With so
    many bank owned homes left to clear, and so many in government and the
    private sector looking at bulk rental investments, apartments may have
    big competition in the same neighborhoods where they used to compete
    against single family buyers.”

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  • Canaan

    I agree and disagree with some of the comments posted here.  First, it depends on when you bought your home.  If you are older and bought a house 15+ years ago and managed interest rates correctly as they were falling, obviously you’ve come out ahead.  However, if you are younger and bought a house in the last few years (3-5 years) your picture may not be as great.  I would also add that if you are contemplating buying a house now, in my opinion, I’d consider renting as all of the points made here make complete sense because of the current economic conditions.  If I was in my 20s now, I’d rent and save/invest $$ rather than invest in real estate, especially in the shorter-mid term.  I’ve always noticed cycles over the past 30 years of my investing life (I’m 50) and have always paid attention to them.  I now own my home outright and have some savings.  As I look forward, my question is whether I should sell my property, or, keep it as a rental property to potentially generate a higher rate of return than I would if I sold and invested the proceeds.  It all depends on where you are in the cycle of the markets, your age, your income and your other resources to keep your head above water.

  • DebtEye

    I bought a condo at an early age, and I definitely regret it. Property taxes keep going up and my HOA fees increase every single year!

  • http://carefulcents.com/ Carrie

    I am a ex-homeowner turned renter and I totally agree with you. While some of the comments are opposed to renting and for owning your own home, for each person it’s different. Some swear to owning and other to renting.

    For me, I’ve had both and can honestly tell you that renting is easier, for the most part cheaper and more stable. You are putting money into another person’s pocket, but you are saving money in the process as well, by not paying taxes, HOA fees, repairs and ect.

    Since I’m a young single person, renting fits my lifestyle much better. If I was older and had a family and wanted to settle down, I’d be willing to risk “investing” in a home where I’d be stuck for 10 years. Otherwise, renting is the way to go. For now.

  • NetWorthProtect

    I have been a renter for the last 15 years and I am totally with you on these points. Renting has allowed me to save a great deal more than I ever could have had I bought a home. Plus I missed the entire housing crisis, which was good (for me) too. BUT, as I get a bit older and now have a decent capital base, I recognize the tremendous buying opportunity right now. There are insanely low interest rates and I just may change teams. However, I am not looking to “lever-up” and buy a home out of my price range. I seek a modest home, with minimal maintenance that I plan to own for many, many years. Whenever I leave, I will rent it out as a income generating property and likely go back to renting in a major city. I like renting in cities because it makes so much more sense than buying. I consider renting in cities as my short on the urban housing market… But for me, country homes are worth a look…

  • http://www.investinthemarkets.com DoctorStock

    I’ve always been a huge fan of ownership, but you make some excellent points. Thanks for the very thoughtful post.

  • http://www.themoneyprinciple.co.uk John_at_MoneyPrinciple

    Sometimes it makes sense to rent as it gives greater flexibiliy. If you have sold a house and have a stash in the bank, renting can give you the break to negotiate a good deal with no purchase train. Or you can take a medium term view and rent for a few years, particularly if the rented house is more than you could afford to buy or in a good schools area. The other problem with buying is that you really become trapped into the work/mortgage vice which is difficult to escape from.

  • tricia99

    Reasons why home owners win:

    1. Rents keep pace with inflation and demand, if you have a fixed rate mortgage the amount you pay each month will never go up.

    2. If you own your home by the time you retire you can live in it “rent free” and you may be able to get a reverse mortgage to supplement your income.

    3. Depending on what loan rate you get, you may pay less in interest than you can make in your other investment accounts. Plus, this interest is tax deductible.

    4. If you pick a good home in a good location at a good price, there is no reason why you won’t be able to sell it later at a profit.

    5. Homeowners have the option of renting out their property if they decide to move and the conditions are right.

    6. A landlord can increase your rent usually with only 30-60 days notice, forcing you to pay more or move.

    Owning your own home is a good investment if you’ve chosen a home wisely, have good credit and can get a good interest rate, and you plan to stay in the home for awhile. Also, do not purchase a more expensive home than you can afford so that you are forced to sell when the market is down. There are a lot of considerations, but I think generally owning a home is much more profitable in the long run than renting. Renting is not an investment, you are giving your money away to your landlord every month.

    • http://www.girlsjustwannahavefunds.com/ Ginger

      Tricia I disagree-I’ll go point by point:

      1. Yes, the amunt you pay will never go up-that is true of your mortgage payment. However property taxes go up over the life of the loan as do HOA fees, homeowner’s insurance and other things that tend to keep pace with market forces and inflation.

      2. Again, good point, however, as I mentioned above you still need to pay property taxes, insurance and possibly HOA fees. If you pay none of these you home can be seized and sold for the balance owed.

      3. Show me hard core facts on this one. Savings rates are at ann all time low, go see what ING and Ally are offering these days. The average mortgage is around 3-4% and we haven’t seen savings rates beat those numbers in years. In order for this to be true, we would need to learn more in a savings/investment account (risky gamble) to outpace what’s paid in mortgage interest. And then there’s taxes on top of what you earn on interest which reduces any real profit.

      4. False. There are several reasons. Check out Florida, Nevada, Washington DC, North Caroline etc etc That simply is not true as there are market forces outside of our control which can change at any moment.

      @tricia99

      5.Touche, renters can sublease if necessary and allowed. In some cases, the banks require that the home be “owner occupied” requiring that the owner live in the home for the duration of the time they live in the home.

      6. False. Landlords have to honor the terms of your lease and only when the lease is up then can they change the terms of your agreement unless it is a month to month agreement.

      As you can see, the money that you pay in property taxes, insurance, HOA fees are not tax deductible and essentially do not help you long term. Furthermore, check out this post on how the deduction really works: http://www.moolanomy.com/2745/how-does-home-mortgage-interest-deduction-work-and-the-big-myth-ttolar/

  • NewlywedsBudget

    I can’t say that I totally agree with you. Well, actually, I don’t agree with you at all. It’s true that a lot of people lost money these past five years, but they also signed into loans they couldn’t afford in the first place. Prices were ridiculously inflated. I still think home ownership is an amazing goal. My parents bought their house for 129,000 in the mid 80′s and sold it for 600,000 when the prices were high. The house they bought now, even though it has lost some value, is still worth a good chunk and I’m sure they will be using it as their retirement nest egg.

    Once my husband secures a permanent job, home ownership is first on our list. It’s not for everyone, but I still think it’s a great investment.

    • http://www.girlsjustwannahavefunds.com/ Ginger

      See my post to Tricia @NewlywedsBudget

  • http://mymultiplestreams.com/ MyMultipleStreams

    While I will say home owning is not for everyone, I do disagree. Yes it will change with the times as the houseing market goes up and down like all markets. Right now might be the perfect time to buy as prices and interest rates are so low, and they are bound to raise again.

    Also once it is paid off you dont have a monthly payment and you DO have equity and value of the home. Renting you will continue to pay monthly with no equity built up for the years and years you have been renting. And you do own the home, it is yours and you can turn around and sell it, tear it down and start over, whatever you wish.

    Yes you will have insurance payments, so do renters if you are smart. Yes you have property taxes (once or twice a year) but dont be fooled renters you are paying that as well within your rent.

    Some dont want to be tied down to a house and renting may be ok for them but in the big picture of life in the long run I think owning is much better IMHO

    • http://www.girlsjustwannahavefunds.com/ Ginger

      How do we know they are bound to rise again?

      Renters insurance compared to home owners insurance happens to be very low. Around $10-$20 per month compared to $700-$2000 per year for homeowners.

      Equity is a falsehood. Until you have that money in your bank account liquid and ready to go then it is nonexistent. This is what enabled the recent crisis.

      @MyMultipleStreams

  • MoneyCactus

    Home ownership is definitely only for those that really want it, it is not always a great investment strategy. If you rent, be smart with the different you save and invest it in something that will make you money.

    • NetWorthProtect

      I agree! Home ownership is NOT for everyone. Home ownership is generally a money-loser or a “flat” investment. Rent and save until you are ready for home ownership knowing the pros and and cons and being fully “OK” with the cons because you value the intangibles associated with home ownership more than the faulty investment characteristics that have been sugar-coded and sold to Americans for years.

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