Renting versus buying a house is the classic debate. It never goes out of fashion, and will always be the # 1 selling point of bankers, realtors, agents and anyone who thinks that home ownership is the be-all and end-all; that is, home ownership is THE North American dream. If you own a house, you’ve got it made, right?
These questions come up often:
- “Why rent when you can buy?”
- “Why make your landlord rich?”
- “Why throw money down the rabbit hole by renting?”
- “Why not buy your own place in the sun”?
If you hang around long enough with real estate types or very proud homeowners, they’ll use every argument to steer you away from that insufferable landlord-tenant arrangement into the lender-borrower relationship.
A relationship, might we add, that could last forever. We’re sure you’ve heard about the mileage that goes into a mortgage. It could go around the Milk Way and back and still be the same as when you first signed for it. The only time you can break a mortgage is if you end up with a cash windfall and pay off your banker – most times with stiff penalties for paying ahead of time instead of on time. A mortgage is as tough as nails.
Renting is Not Just a Question of Money
There are at least two kinds of people in this planet: those who rent because they can’t afford a down payment on a house and those who rent because their lifestyles dictate it.
Those who can’t afford a down payment on a house in spite of the fact that they’ve held steady jobs probably prefer to spend their money on other things. A house is certainly the last thing on their minds and occupies the lowest position in the totem pole of their spending priorities.
That’s one of the many advantages of renting instead of a buying a house. Many opt for the financial flexibility that renting offers. What are the other advantages?
- low maintenance costs– for some renters, the maintenance of their apartment is limited to keeping it tidy. Vacuuming and cleaning are just about the only tasks that will take up your time and cash. Once you purchase a vacuum cleaner and some household cleaning supplies, you’re set up. If the heater is not working or if there’s a leak on the roof, those problems are taken care of by your landlord or janitor.
- get-up and go– apartment living is great when it comes to leaving your dwelling behind at a moment’s notice. You make sure your indoor plants are watered, lock the place and then prance around the earth for as long as you want. There are no worries with respect to leaving your belongings and valuables unattended for indefinite periods of time. As long as the building’s security system is working properly and you’ve got neighbors you can trust to pick up your mail and newspapers, there isn’t much house-sitting you need to do.
- frequent flyer– if you travel frequently on business, renting is a viable alternative especially if you’re the type of employee who gets transferred every couple of years to a new posting. You’re one of these upwardly mobile 30-something guy or gal who lives out of a suitcase more than in a house so owning a house in this particular situation is not as attractive.
- frequent boredom– there are those who easily get tired of their surroundings. One day, the kitchen is too small, next day, there isn’t enough closet space. Next month, you’ll be complaining that your neighbor is weird, the shopping center is too far, or there aren’t enough internet cafes in the neighborhood. So if boredom sets in, what do you do? You simply don’t renew your lease and look elsewhere for a new abode. If you were a homeowner, you’ll have to live with your boredom until you have enough cash to buy another house.
- easy on the pocket– we did say that the preference for renting is not just a question of money, but renting is sure easier on the pocket. No property taxes, no hefty heating bills, no school tax, no renovation costs to shell out money for. This means you have more money set aside for activities you like to engage in: eating out, going to concerts, traveling, pub-crawling, shopping, shopping and more shopping.
We’re convinced there are more joys to renting other than what we mention here, but let’s look at the flipside – buying – and see if that too has its advantages.
Buyin’ a House/Buildin’ Equity
Yes! Building equity appears to be a sound financial decision. Bankers, accountants, and financial planners all sing from the same song sheet: equity is king!
Having equity means different things to different people. You have equity in case emergency strikes, equity for retirement, equity for credibility and financial standing, equity for self-confidence.
When you buy a house, you begin to build equity, albeit slowly. As you make those mortgage payments, those payments are automatically converted into equity. When the house is 50% paid off and is worth, say $250,000 in the market, right away you have $125,000.00 in cash, lien free! And when your house is fully paid, you’ve got 100% equity. In turn, this 100% equity can generate more cash for you. You can borrow against it to invest in your favorite stock, buy a second home or finance your child’s education. Most banks will lend you up to 75% of the value of your home with a low interest rate, because borrowing against your home is the safest loan possible. Should you default, the bank simply seizes your property.
What other advantages are there to buying a home?
- your very own– your house represents your place in the sun. The patch of land that your house is sitting on plus the house itself belong to you and only you. Make sure, however, that your title and ownership deed are tucked somewhere safely.
- family comfort– when the kids start coming – and you’re planning on a large brood – there’s no place to raise them but in a house. No two ways about it – unless you can find an apartment with at least six bedrooms. Most apartments these days are built for 2.5 people. Plus, when there are kids and they get rowdy, you want to seek refuge in your little corner without any disturbance for at least a couple of hours. If you have a basement, you can hang out there, and when the kids and their friends invade your space, you can go upstairs.
- entertaining is easier– your friends, family and colleagues are a permanent part of you and you can’t run away from them. The solution is to host them periodically and your home is the best place to do it. You can barbecue in the patio, picnic on the grass, or have a formal sit-down in the dining room.
- stability and forced savings– if you’re a homeowner, the house has a way of anchoring you and your family, hence paving the way for enduring and stable relationships. A home serves as an archive or storage facility for memories – happy and sad. Lives unfold at home and meanings are negotiated at home, not in the mall!
Don’t be bullied into either renting or buying a house. The decision is yours and will be influenced by your sense of values and priorities. Perhaps homeowners are viewed as more stable and are more attractive to money lenders, but buying a house is a very personal matter.
To us, it’s not so much renting or buying a house. If you have adequate cash stashed away you should be okay as a renter. It is when you rent and squander your resources that a financial crisis can loom far ahead. Just remember that in the long term, owning a house can save the shirt on your back, and spare you from insanity.