💸  Meet YML Plus: The AI-powered financial sidekick for employees. See the overview | Read the blog
Blog Post

Renting Happily Ever After

"Everyone should buy a house." You’ve heard it, I’ve heard it. And it is wrong. Worst of all, it perpetuates that idea that renters are somehow “less than” homeowners in our society.To be clear, there is nothing wrong with buying a house in the right circumstances. But it is equally true that renting is often a preferable choice, again depending on the circumstances:

  • You crave flexibility. You don’t want to commit to a particular residence, or even a particular city for the long haul. Buying and then selling within a short time frame (for example, less than 5 years) doesn’t usually work out well financially because of the large up-front transaction costs.
  • You are new in town. Having just arrived in a city, even one that you think you know well, is not the time to commit to a home purchase. The fact that you know a place as a visitor doesn’t necessarily qualify you to make the best choice about where to live.
  • You want someone else to do the worrying for you. This could happen at any stage in your life, perhaps even in your retirement. Not owning the property means that a whole host of responsibilities are lifted off of your shoulders. And that can feel pretty good.
  • You can afford to rent the home you desire in your desired location, but can’t afford to buy there. This may refer to a particular city, or to a specific neighborhood. Your home should bring you joy. How will you feel waking up each morning in a place that you dislike?

Are there downsides to renting? Of course there are, just as there are downsides to buying. One of the most touted benefits of homeownership is the possibility of building equity. This is because buying a home with a mortgage is a “forced” savings mechanism; with every monthly payment you add to your investment over a period of years without selling. Given that the all-in costs of renting are usually less than owning, a savvy renter will mimic this equity-building feature by consistently investing the difference in cost between owning and renting.Perhaps the more serious downside to renting is that you give up some control, including over the amount of rent that you pay. But bear in mind that the cost of ownership also rises over time...property taxes go up, as well as maintenance costs. And as a renter, you can more easily reduce your housing costs if your financial circumstances change and require you to do so.Renters also let go of some amount of control over their environment...whether or not to paint the wall lavender, for example. For this reason, the decision to buy is often one that is made not with our head, but with our heart; our desire to “feel” ownership over our home regardless of the actual economic benefit. We accept that emotional pull as a reasonable motivation to buy without question. Let’s also accept that the emotions that pull us towards being a renter are equally valid.