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Can Renting Make Financial Sense?

Updated on January 2, 2018

Most Americans want to own a home of their own so that they feel that they've achieved the American Dream. While owning a home is a big aspiration for many people, renting can sometimes make more financial sense.

Why would renting make more sense for some people? Here are some reasons that will explain why renting might make financial sense.

A New York City tenement complex from around 1900. These tenements housed many people in tight quarters.
A New York City tenement complex from around 1900. These tenements housed many people in tight quarters. | Source

Rent When Owning Is More Expensive

It is always important to make a cost-benefit analysis of any purchase. Because a home is the biggest purchase that most people will make in their lifetime, it is important that those who are looking to buy carefully weigh the cost of this purchase.

In most US markets, buying a home is actually cheaper over the long term than renting is. There are some places that renting will actually come in lower than buying a home. In these areas, it might make more sense to rent. Also, it is basically impossible to get much home for the money in some of the major urban areas, so renting might be a good idea in these regions.

Rent When Short on Cash

While renting a studio is not ideal for a family of four or more people, it can be a good financial move for a single person. Most people start out their adult lives with little cash. Therefore, renting as cheaply as possible is a great way to build up a cash reserve that can go toward a home later.

Adding a roommate can also cut down on this expense. A two-bedroom home just screams for a roommate. Those who share expenses can save some serious money in the process.

Some might argue that there are some loan programs that require little, if any, down payment. It is true that there are some options that require no down payment. Those who are buying these homes will still need to pay closing costs in most instances, so it is a good idea to save up some money for the expense.

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Rent When Planning a Short-Term Stay in an Area

Some people have jobs that move them around on a regular basis. Those who are only planning to stay in an area for a year or two might want to think twice about buying a home. Most of the money spent will go toward interest, rather than building up equity for the owner. As noted above, buying a new home will incur closing costs. So will selling a home. A person who is only in a home for a year will probably get hit twice with closing costs.

Those who will be moving within a year or two could also run into another problem. There is the issue of finding someone to buy a home. Those who have trouble finding a buyer could find themselves paying for a mortgage in a city that they no longer live in while also paying for housing in a new city. For these reasons, it is a good idea for these people to rent a home.

Rent to Avoid Paying for Repairs out of Pocket

Of course, it can definitely be argued that renters do pay for home repairs and new appliances. It is true that landlords include these expenses in the rent that they charge.

The renter will not have to pay for these financial calamities out of pocket at once. Rather than calling a contractor to replace a leaky roof, a renter can just call the landlord, and the landlord will have to deal with the problem. Additionally, the renter will not have to go into debt to fix the problem as the owner of the property will have to deal with it.

Owning can lead to massive expenses. A new roof, a collapsed sewer that requires some major digging, or a new furnace can each cost well into the thousands of dollars, and most people will not have thousands just sitting in a bank account to pay for them.

Increase Freedom While Decreasing Stress

Those who rent can sometimes find a month-to-month arrangement. This allows them to just walk away if they find a better housing option. Additionally, those who might like to travel for a month or six can do so without having to worry about a mortgage payment staring them in the face.

Those who cut their housing costs through renting should be able to build up more passive income over time as they save and invest. They don't have to worry about making massive repairs as noted above. All of these benefits should reduce the amount of stress that a person has early in their lives.


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