{"id":73845,"date":"2020-02-23T15:00:39","date_gmt":"2020-02-23T22:00:39","guid":{"rendered":"https:\/\/www.biggerpockets.com\/renewsblog\/?p=73845"},"modified":"2021-03-16T11:41:03","modified_gmt":"2021-03-16T17:41:03","slug":"2015-07-11-4-reasons-rent-invest-buy","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/2015-07-11-4-reasons-rent-invest-buy","title":{"rendered":"4 Reasons Renting & Investing Beats Buying & Owning\u2014Hands Down"},"content":{"rendered":"

On a daily basis, I speak to people who are caught up in living the “American Dream.”<\/p>\n

The storyline goes something like this:<\/strong><\/p>\n

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

    Does this sound like you and your future plans?<\/p>\n

    In this article, I would like to challenge the above status quo.<\/p>\n

    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\u2019s no question that buying a house makes sense for some people, but it\u2019s certainly not for everyone. Owning a house gives you stability. That\u2019s what people say, at least.<\/p>\n

    So, when you\u2019re 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.<\/p>\n

    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\u2019d go even further and tell you that if you\u2019re looking to make money, buying a house to live in is a terrible waste.<\/p>\n

    Let\u2019s look at the four best reasons why renting is better than owning a property.<\/p>\n

    Why Renting & Investing Beats Buying & Owning<\/h2>\n

    1. You don\u2019t have to get a mortgage.<\/h3>\n

    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\u2019t have all that money just laying around, and getting a mortgage is the best way to attain it.<\/p>\n

    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\u2019s 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.<\/p>\n

    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\u2019re done.<\/p>\n

    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\u2019s easy to have paid twice the amount of the original purchase after 25 years. But all that is pretty well understood.<\/p>\n

    There\u2019s one thing that\u2019s always forgotten, though. A mortgage is a debt.<\/p>\n

    So what? You\u2019re making your monthly payments, and they\u2019re possibly even lower than what you would be paying for rent. But rent is an expense and not a debt. And that\u2019s the one thing that makes all the difference.<\/p>\n

    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\u2019ll find it way harder to get one.<\/p>\n

    Related:<\/strong> Debunking the Buying a House is a Bad Idea Myth<\/a><\/em><\/p>\n

    This means that all that money you had access to for your home is just sitting there and costing you more money. There\u2019s nothing you can do with that money, and you definitely can\u2019t use it to invest and earn more money.<\/p>\n

    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.<\/p>\n

    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.<\/p>\n

    \"eental<\/p>\n

    2. People borrow more than they can afford.<\/h3>\n

    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\u2019re 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\u2019s easy to go too far and get lured into paying more than what you should.<\/p>\n

    Many folks who\u00a0are 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\u2019s 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\u2019m guessing these people no longer think they made a good investment.<\/p>\n

    With renting, you know what you\u2019ll be paying next month, and you don\u2019t 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\u2019ll have to give you notice. So, no surprises and no headaches.<\/p>\n

    3. You\u2019re no longer mobile.<\/h3>\n

    With globalization, people have become more mobile. But even when you\u2019re 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\u2019s school. If you\u2019re 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.<\/p>\n

    This is certainly not the case when you rent. You\u2019re 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\u2019re tied down to a home you own, you\u2019ll have to pass on a lot of possibilities. When you\u2019re 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.<\/p>\n

    \"\"<\/p>\n

    Related:<\/strong> Are Extra Mortgage Payments Worth It? A Look at the Numbers<\/a><\/em><\/p>\n

    4. Houses have operating costs and maintenance.<\/h3>\n

    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.<\/p>\n

    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\u2019s mind. Apart from this, owners also have to pay annual property taxes and a variety of other miscellaneous expenses.<\/p>\n

    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.<\/p>\n

    Despite all this, it is still very common for people to push you to buy instead of rent. Here\u2019s a good way of looking at it. If you\u2019re planning to stay where you are right now and if you\u2019re not looking for financial growth and more freedom, then buying a house might be for you. Everyone else should really reconsider\u2014because owning a home might be costing you way more than your monthly mortgage payment.<\/p>\n

    And don’t forget about those little green soldiers marching and fighting day and night for you.<\/p>\n

    Do you agree or disagree? Why?<\/em><\/p>\n

    Leave a comment and let’s discuss!<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

    Buying a house is the American dream, but is it right for everyone? Have you ever considered all the downsides of getting a mortgage? Take a look at how renting can grow your money and allow you the flexibility owning can’t.<\/p>\n","protected":false},"author":1672,"featured_media":121846,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[6804],"tags":[],"class_list":["post-73845","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-buying-selling"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/73845","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/1672"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=73845"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/73845\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/121846"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=73845"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=73845"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=73845"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}