Six Reasons Why Renting Makes Smart Financial Sense

why renting makes financial senseWith interest rates reaching near-historic lows, it’s no surprise that mortgage lenders have been pushing consumers to buy now to avoid the coming rate bump.

But, if you’re not ready to buy a home yet, there’s really no sense to make the leap yet.  Buying a home is one of the largest and most important purchases decisions you’ll ever have to make as a consumer.  There’s no reason to leap into a home purchase just because the market may be right or interest rates are low.

Home ownership is a big financial decision that requires careful planning and consideration – not to mention smart saving.

Plus there are built-in advantages that can make renting very attractive – especially if you’re just starting out or need to get a handle on your financial status.

Smaller Down-payment
In an apartment, you don’t have to drain your savings for a down payment that might appreciate faster in an investment in mutual funds than in a house.

Apartments usually require some money up-front –first and last month’s rent and a damage deposit is pretty common, for instance.  But that’s far less than what’s required of borrowers in most mortgage products.  To avoid paying Private Mortgage Insurance, many home buyers will need to budget at least 20% of the purchase price of the home for a down payment.

With more money at your disposal, you can make smart financial decisions, like paying down outstanding debt or increasing the amount of money you’re saving for retirement.

No Maintenance
In an apartment, repair and maintenance costs are not your problem.  Your landlord will cover any break/fix issues – and the related costs. On the other hand, experts say homeowners should expect to spend at least 1% of the cost of a home’s value in maintenance costs each year.  And that’s for newer construction.  Owners of older homes or those that haven’t been well maintained should plan to budget even more to be on the safe side.

Better Amenities
Owners of apartments compete fiercely for tenants in most markets.  And that often leads to pretty sweet amenities for renters.  Some or all of your utility bills may be covered by your landlord.  Or your might get free use of a pool, exercise equipment, clubhouse, or shuttle.

No Selling
Moving soon? For apartment dwellers, that’s no sweat.  You won’t have to find a buyer or a new tenant – a landlord handles all of that.

Compare that to homeowners, who typically have to spend on a realtor and may need to sweat out several months with two mortgages or in short-term housing.

Less Risk
If the great recession of the last few years has taught us anything it’s that real estate is no longer a sure bet for appreciation.  Many borrowers are still underwater on their mortgage and struggling to get by because of it.  In an apartment, there’s no risk to you if real estate values drop again.

No Property Taxes
Municipalities continue to search everywhere for revenue to run local governmental services.  Unfortunately for homeowners, raising property taxes is a frequent solution.  In an apartment?  You’ll never have to worry about budgeting for costly property tax payments.

Even if these issues are not important to you, never let yourself be persuaded to buy a home with a monthly payment you’re not comfortable with. If it seems like a lot, it probably is.

You’re better off saving more now so that when you are ready to buy, you’ll be able to make a higher down payment that will mean a lower monthly payment for the life of your mortgage.

Photo by Tahko Spa 5 / CC BY-ND 2.0

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