Buying & Selling Houses

4 Reasons Renting & Investing Beats Buying & Owning—Hands Down

Expertise: Real Estate Investing Basics, Personal Development, Landlording & Rental Properties, Real Estate News & Commentary, Business Management, Flipping Houses, Real Estate Deal Analysis & Advice, Personal Finance, Real Estate Marketing
247 Articles Written
Two paths with different heights of coins.

On a daily basis, I speak to people who are caught up in living the “American Dream.”

Want more articles like this?

Create an account today to get BiggerPocket's best blog articles delivered to your inbox

Sign up for free

The storyline goes something like this:

  1. Finish college
  2. Find a well paying 9-5 job
  3. Get married
  4. Buy a highly leveraged house
  5. Have kids
  6. Find a better paying 9-5 job
  7. Up-size to a bigger house and bigger mortgage
  8. Send kids to college
  9. Down-size to a smaller property
  10. Hopefully live and enjoy life for another 20 years without having a mortgage forcing you to get out of bed every morning

Does this sound like you and your future plans?

In this article, I would like to challenge the above status quo.

Food, clothing, and shelter are the three basic requirements of human beings. After food and clothing have been looked after, most of you start looking for a house to call your own. There’s no question that buying a house makes sense for some people, but it’s certainly not for everyone. Owning a house gives you stability. That’s what people say, at least.

So, when you're looking for a place to live, a lot of people will tell you about the many reasons why you should buy your own house. However, some people would say that home ownership as a path to wealth generation is nothing but a marketing ploy of the real estate industry. And they do have a pretty good case.

With that thought in mind, renting habits have changed in the last few years, as many people consider this as a viable option. Financially speaking, owning a house is not always the best bet. I’d go even further and tell you that if you’re looking to make money, buying a house to live in is a terrible waste.

Let’s look at the four best reasons why renting is better than owning a property.

Why Renting & Investing Beats Buying & Owning

1. You don’t have to get a mortgage.

This one is the most obvious but often misunderstood. Although some people are able to just buy a property with savings they have ready to spend, for most, a mortgage is considered the only way to buy a home. Most people don’t have all that money just laying around, and getting a mortgage is the best way to attain it.

So, even when a property is more than what the buyer has in his bank account, they can still spend it on a home of their own. It’s easy to think of a mortgage as a safe option to consider since it gives people the ability to spread that huge cost over a period of say, 25 years.

And that makes it easy, right? All you have to do is make a monthly payment, pay the bank a little extra on top of the original cost, and you’re done.

That small percentage you have to pay in addition to the original sum adds up to a pretty huge amount over this long period in spite of a mortgage interest deduction. Taking the interest into account, it's easy to have paid twice the amount of the original purchase after 25 years. But all that is pretty well understood.

There’s one thing that’s always forgotten, though. A mortgage is a debt.

So what? You’re making your monthly payments, and they’re possibly even lower than what you would be paying for rent. But rent is an expense and not a debt. And that’s the one thing that makes all the difference.

Buying a house against a mortgage will only increase the debt to the income ratio you already have. This has one major consequence: If you need to borrow money for other essential things like, say, a student loan or a car loan, you'll find it way harder to get one.

Related: Debunking the Buying a House is a Bad Idea Myth

This means that all that money you had access to for your home is just sitting there and costing you more money. There’s nothing you can do with that money, and you definitely can’t use it to invest and earn more money.

Owning a home will usually cost you more per month than renting anyway. To this day, I still rent and use all of my personal funds for investment purposes.

I like to joke around by calling my personal funds “little soldiers.” They are always out fighting and making me more money instead of being stuck in a bunker (mortgage) and not able to move anywhere.

eental agreement form with signing hand and keys and pen

2. People borrow more than they can afford.

When you’re out to buy something, you simply look at the price attached to it and depending on how much you can spend, you’ll buy it or you won’t. What you can spend in this case is usually whatever you have in your wallet or on your bank account. However, when you’re getting ready to buy your own house, things change. By getting a mortgage, a slight increase in monthly cost can get you a tremendous increase in budget. It’s easy to go too far and get lured into paying more than what you should.

Many folks who are associated with getting you across the line with purchasing a property, like your real estate agent and mortgage broker, can play on your emotions and get you to commit to something that you really shouldn't. And in any case, you think it's a good investment, right? Well, reality presents a different picture. Currently more than 10 million homeowners in the US are under mortgages worth more than the actual values of their houses. And they continue repaying these mortgages for years and years. I'm guessing these people no longer think they made a good investment.

With renting, you know what you'll be paying next month, and you don't have to worry about paying too much for a property. If for whatever reason you can't afford to pay the rent anymore, you can find another property with cheaper rent as soon as your lease is up. Another benefit is that the lease is fixed as long as the lease is still active, and if a landlord decides to increase the rent, they'll have to give you notice. So, no surprises and no headaches.

3. You’re no longer mobile.

With globalization, people have become more mobile. But even when you’re not leaving the country, people shift jobs a lot more than in the past. This is even more the case for the latest generation that has hit the workforce. With all these people switching jobs comes a whole lot of relocating. Many people choose a specific area simply because of how close it is to either the workplace or to the children’s school. If you’re one of those people, it makes a lot of sense to remain flexible with where you live. If you buy a home, that mobility is gone.

This is certainly not the case when you rent. You’re almost as mobile as you want and that has its advantages, probably more so for the younger generations. When you want to make the most out of your life, you need to be able to seize every opportunity you can. When you’re tied down to a home you own, you’ll have to pass on a lot of possibilities. When you’re renting, a whole world of opportunities just lies there for the taking. Look at me, for example. I packed my bags and left Sydney, Australia to move to Kansas City. All this happened within two weeks after making a few minor arrangements.

Related: Are Extra Mortgage Payments Worth It? A Look at the Numbers

4. Houses have operating costs and maintenance.

While the value of a house increases over a certain time period, the life of the equipment present in the house does not. Since properties are valuable assets, the owners try their best to keep their houses well-maintained. That means that owners will spend money on repair, modification, redecoration or annual common service fees in order to keep that property value up.

The cost of ownership is usually something that is overlooked, but it adds up to a considerable sum. A leaky roof, frozen pipes, a pool to take care of or just simple home improvements are some of the expenses that are always on the homeowner’s mind. Apart from this, owners also have to pay annual property taxes and a variety of other miscellaneous expenses.

Now, don’t forget that if you become a landlord and put your little soldiers (money) to good use, you will still get hit with all kinds of expenses, but in this scenario, the properties you own will be tenanted and should be producing large sums of cash flow. In return, paying for expenses shouldn’t have a direct effect on you, as they will be covered by the rent you have received from your tenants.

Despite all this, it is still very common for people to push you to buy instead of rent. Here’s a good way of looking at it. If you’re planning to stay where you are right now and if you’re not looking for financial growth and more freedom, then buying a house might be for you. Everyone else should really reconsider—because owning a home might be costing you way more than your monthly mortgage payment.

And don’t forget about those little green soldiers marching and fighting day and night for you.

Do you agree or disagree? Why?

Leave a comment and let’s discuss!

Engelo Rumora, a.k.a."the Real Estate Dingo," quit school at the age of 14 and played professional soccer at the age of 18. From there, he began to invest in real estate. He now owns real estate al...
Read more
    Kristin Zajac Rental Property Investor from Killington, VT
    Replied almost 2 years ago
    Thank you for this article Engelo! I agree with you completely. I live in Boston where both rents and home values are extremely high. I would much rather invest in rental property in an out-of-state market where I can get a return rather than purchasing a primary home for $800k and tying up all the down payment and other expenses in hopes that when I want to move the appreciation is in the right place. Glad to hear someone else sharing this opinion!
    Engelo Rumora Specialist from Toledo, OH
    Replied almost 2 years ago
    Hi Kristin, No worries at all. Glad that you agree I wish you much success
    Joseph Walsh from Brookfield, Wisconsin
    Replied almost 2 years ago
    It’s a shame you didn’t put more into this list. Pros/cons. As it stands, it’s a bit disingenuous, in that you focused in on a narrow set of pros/cons, and filtered out the tangential. Something like this would be of more value: 1.) Qualifying for a mortgage requires a significant down payment,good credit, and add’s debt to your credit profile. That down payment could be invested instead. A mortgage can also help your credit rating over time, brings a tax deduction, and is generally lower than renting a similar sized apartment. It’s also immune to rent increases if a fixed mortage, which average 3% a year, it’s a trade off, and the ability to get a mortgage can be a barrier. (of course, if your credit is bad, you generally can’t get a “good” apartment either) 2.) When buying a house, it’s tempting to buy as much as you can “afford” on paper, with no consideration of lifestyle changes. Similar to taking on an apartment that is more expensive downtown, and learning you can’t afford to eat out 3x a week. The difference is you’re locked in for the long haul (see #3), where when renting you can exit once your lease is up. You should buy/rent based on your budget, not your “qualification level” 3.) your tied to the location. With an apartment, you can move once your lease expires, or possibly break it with a small cost. While you can move with a house, you have to either sell it, or rent it out, neither of which is easy. Either could make you money, or cost you money, depending on the market. Similar to investing in stocks. The assumption is over time, values will increase, and you will make money, but it is not guaranteed. With an apartment, all you are out is your non-refundable portion of your security deposit. WIth a mortgage, typically one year is not enough time to sell a property and “break even”. 4.) Houses can have unexpected and varying maintenance costs. With renting, your cost for maintenance is fixed for the length of your lease. While you do pay for it, it is included in your rent, and overall it is spread out over many years, some of which you may not even be living there to incur. You are subject to potential rent increases yearly, however, you are not subject to a $3000 furnace replacement in the middle of winter. Of course, it is also possible you never have a major unplanned expense while owning a home for the average duration of 5-7 years. Still, you need to set aside a contingency, on top of the contingency you would have to set aside as a renter. This is money which could be invested however. Disclaimer: I see absolutely no advantage to rent vs buy, unless you live in an inflated market, or expect to relocate several times in the next few years.
    Account Closed
    Replied almost 2 years ago
    You have to consider this on a case by case, location by location basis. I used to think the same as you and it worked for me for a while . I live in Chicago and over the past 5-7 years it has gotten ridiculously expensive. I was looking to rent and quickly saw that the rents for a one bedroom (700-900sqft) in the city were between 2-3K. Rents are climbing with new construction rentals going up like crazy (students primarily are driving this) I dont see signs of this slowing in Chicago (bust coming soon?). I also found that I was limited to certain areas if I wanted to stay on the low end of that range and those areas were not too desirable considering my commute time for work and other things. It quickly made more sense for me to buy because my mortgage would either be at the low end range of rents or lower. Home buying also expands choices of where in the city you can live and what you can buy (something more than 700sqft). You idea works only if rental prices are reasonable or more affordable than buying, because ultimately you have to be able to save. That’s how I was pushed into real estate.
    Engelo Rumora Specialist from Toledo, OH
    Replied almost 2 years ago
    Thanks Gina, I own a property in Chicago. There are stellar condo’s for rent that are cheap. Nothing comes without hard work or sacrifice. Most people aren’t willing to put in the time. Knowing the Chicago market like I somewhat do, I still think it’s better/cheaper to rent than own. Just my opinion I wish you much success
    Owen Franks Attorney from St Petersburg Fl / Cambridge UK
    Replied almost 2 years ago
    I never get why people say ownership ties you down but renting doesn’t. I own my home and could leave it tomorrow, renting it to someone else and go wherever I please. But if you rent, you’ve got a lease of up to twelve months (or more) tying you to one place. I have several times moved out of homes I own and rented to others to move all over the world – the UK, France, and America. And now those homes have turned into little green soldiers fighting for me and bringing in rent, but I got the pleasure of owning my own home too. The one big exception I would make here is for ‘risky’ properties – I mean real physical risk. I recently stayed in a place in St Augustine FL. Beautiful location. Right on the beach. I could be very happy there. But with Hurricanes hurtling through every September, I wouldn’t want to take on that risk. But I’d happily rent my own place out, and rent a place like this for myself to live in:
    Engelo Rumora Specialist from Toledo, OH
    Replied almost 2 years ago
    Thanks Owen, You could used the equity in that home and invested it to make so much more than it just sitting in a property doing nothing. I have always preferred staying very liquid and just constantly multiplying my “green little soldiers” by doing deal after deal. It’s an active path but also a quicker one to financial freedom in my opinion. Much success
    Francine Brown
    Replied almost 2 years ago
    we are going to sell our home.. we will pull out equity and pay the same amount or less when you look at capex on homeownership and time with maintenance, etc.. The cash flow we will gain from the equity from the house will pay more than 1/2 our rent and we will have more time that isn’t spent on taking care of our home. win, win.. scarey but a win, win.. we are ready, plus the added tax benefits of having a corporation and some of tax write-offs we will gain from that, too. we will be paying the same amount of rent we were paying 20 years ago.. plus in 10 years by reinvesting that cash flow we can pay for our dream home in cash… I’ll take the sacrifice now..
    Francine Brown
    Replied almost 2 years ago
    ughhh i added an e on scary lol
    Andrew Syrios Residential Real Estate Investor from Kansas City, MO
    Replied 7 months ago
    In high priced markets, I think this is definitely true. In more reasonably priced markets like the Midwest and South, I think it makes sense to buy since the cost is similar to renting and you can take advantage of things like FHA financing. And you get the principal paydown/appreciation to boot.
    Michael D. from San Diego, CA
    Replied 7 months ago
    Not even necessarily true in high priced markets. High rent goes along with high purchase price. In CA I bought a condo with $11k down and paid $100 more a month (not counting tax deductions) than my apartment. When I sold five years later I walked away with $125k and accepted an offer at asking price less than 1 week on the market. My only repair in five years? A shower faucet cartridge. So yeah, I had a mortgage, but minimal money tied up, was able to sell quicker than someone can break a lease, and didn’t spend a bunch on repairs.
    Frank Salamone
    Replied 7 months ago
    Yes! Rent please rent from me. I’ll buy and you rent. Genius! In the past 5 years my rental rates have increased 64% while the property value increased by 44%. Truth is every situation and market is different one size does not fit all. Thanks for the article and challenging the status quo!
    Engelo Rumora Specialist from Toledo, OH
    Replied 7 months ago
    Thanks Frank, I always like offering a different perspective on things. I wish you much success
    Jack B. Rental Property Investor from Seattle, WA
    Replied 7 months ago
    Ummmmm....this article talks about how investing is better than buying a houses make you imobile and how they have operating costs and maintenance...yet the authors bio states that he invests in real estate right at the end of the article: "Engelo Rumora, a.k.a."the Real Estate Dingo," quit school at the age of 14 and played professional soccer at the age of 18. From there, he began to invest in real estate. " So you wrote an article that is about how houses suck and yet you are a real estate investor. So the reasons houses suck don't apply to you as a landlord? A house will cost you more than renting? Apparently you've never run the numbers on this, having dropped out of school at 14 is a guess why. Inflation drives up the cost of rents over time. The mortgage will be paid off after 15-30 years. Renting is far more expensive over the long run. And I put 11K down for my current primary residence in one of the most expensive markets in the country. It went up 275K in value over 7 years and rent's for $1,225 more than my mortgage payment if I rent it back out. That's going to keep going up over time. This article is full of bunk reasons and poorly thought out positions with no understanding of the math.
    Engelo Rumora Specialist from Toledo, OH
    Replied 7 months ago
    Thanks for your comment Jack and my apologies you didn't find the blog useful. I wish you all the best with your real estate endeavors.
    Jack B. Rental Property Investor from Seattle, WA
    Replied 7 months ago
    Nowhere in your article does it say what you invest in. I only got that from your bio. You make it sound like you invest in stocks in the article, but your bio says you are known as the "Dingo of Real Estate" and are a real estate investor. Your article also says: "Owning a home will usually cost you more per month than renting anyway. To this day, I still rent and use all of my personal funds for investment purposes." Ummmmm....if that's the case then that would mean your tenants are getting a deal and you are know since renting is cheaper than owning...usually...if what you say in the article is true then you're literally doing what you say not to do and losing money on it...except I don't think you'd be doing it if you were losing money on it. This article makes absolutely no sense whatsoever...