There is often a misconception that buying is unequivocally better than renting. Renting is viewed as wasting money and not building equity. However there may be several reasons why renting is better than buying.
1. No maintenance costs - As the owner of a home, one would be responsible for maintenance and repair of the home. Unforeseen costs can often add up. For example, replacing an HVAC system will often run in the tens of thousands of dollars. As a renter, one would not need to burden the risk of maintenance costs.
2. Transactional/frictional costs - Closing costs, broker fees and other frictional and transaction costs can become a substantial portion of the purchase price. Frictional costs can often be 10% of the purchase price when buying and selling. On a $200,000 home, that is $40,000 of fees and costs upon purchase and sale of the home.
3. Lower utility costs - You still need to pay for utilities when you rent, but chances are, your utility bills would be higher if you owned a home. First, a larger space uses more energy, so you can expect your heating and cooling costs to increase. You may also have to pay for watering your yard, upkeep of a pool or utility bills that were previously included in your rent, such as water, trash or association fees, if you live in a subdivision or condominium.
4. Real estate prices go up by 2% a year - Historically, real estate prices only appreciate by 2%, the rate of inflation. Why have your money tied up earning 2%?
5. Real estate prices can go down - As we have seen in 2008, real estate prices can decrease substantially. Many homeowners lost their homes, down payment and destroyed their credit score through foreclosures and bankruptcies due to too much debt on their homes.
6. No property taxes - You don't have to pay property taxes. Homeowners are required to pay property taxes, which can be passed by counties, cities and even school districts, so exactly how much you would pay depends on where you live. For example, the median property tax in New Jersey is $6,579 per year for a home worth $348,300, while the median property tax in Louisiana is $243 per year for a home worth $135,400, according to Tax-Rates.org. Regardless of the amount, that's an expense renters avoid completely.
7. Debt-free - You're likely to have less debt. Between student loans, credit cards and car loans, many Americans are already in debt before introducing a mortgage to the mix. In fact, Debt.org reports that more than 160 million Americans have credit cards, and on average, each household carries more than $15,000 in credit card debt. On top of that, NerdWallet reports that the average household has more than $154,000 in mortgage debt. Take a house out of the equation, and you don't have to worry about that mortgage debt.
8. Insurance - Renters insurance is less expensive than homeowners insurance.According to the Insurance Information Institute, the average annual home insurance premium ranges from about $600 in Wisconsin to nearly $2,000 in Florida. On the other hand, the institute says a renters insurance policy averages only $187 per year.
9. You have more freedom and mobility. Got a job offer in a new city? Just need a change of scenery? Renting gives you that flexibility. Americans tend to be mobile, and unless home prices are rising steeply, it usually doesn't make financial sense to sell a home a few years after buying it. As a renter, packing up and moving is a much easier process.
10. You can live in a better neighborhood. Perhaps you can't afford to own a home in your dream neighborhood -- the one with the best restaurants or the one with the best school district -- but it may be attainable if you rent. If living in a certain neighborhood suits your lifestyle, moving away just so you can afford to purchase a home may leave you feeling unsatisfied on a day-to-day basis. It could also increase your commuting costs.
11. You'll be more financially stable. While purchasing property can be an investment and home prices can appreciate, a mortgage can also dig you into a deep hole. The real estate market is unpredictable, and there are no guarantees. If you put all your savings into purchasing a home, you could be jeopardizing your long-term financial needs -- especially if you're on a tight budget to pay your mortgage.