6 Reasons renting is more advantageous than buying
There are a few instances where renting a home is more advantageous than buying one.
— When you don’t have cash for a downpayment and mortgage closing costs.
There are some instances where you don’t need to come up with a downpayment (VA and USDA-backed loans, for example) and you might even be able to bury many or all of the closing costs into the interest rate. That said, getting into a home where you have zero equity and a higher than market interest rate probably isn’t the best combination for most wannabe homeowners.
— When you can get more of what is important to you by renting.
It may be that a short commute to work is high on your list, but you might not be able to afford a home in an area that’s close to where you work. It may be that a great school system for your kids is priority number one, but homes in such areas can be expensive to buy while renting might give you access to that which you prize most.
— When your employment history and future is uncertain.
If your income has been and may continue to be erratic, not only can this make it hard to have the bona fides to be able to qualify for a mortgage, making it much less of a hassle to rent.
— When you are uncertain about how long you want to stay in the area.
Also known as “putting down roots,” there’s a much greater argument to be made for renting rather than buying a place if you are looking at a time frame of less than five years. Getting into a home you buy is expensive (closing costs of 2–4% of the purchase price are typical, and “exit costs” (sales commissions) when you look to move can run another 5 or 6 percent of the value. Given these expenses, you generally need to stay put for 5 years (or more) to build enough equity from paying down the loan and market-based property price appreciation to cover all these costs so as not to have owning a home be more costly than renting.
— When you’re not handy, and homes you can afford are older/fixer-uppers.
Aside from the “getting in” and “getting out” costs of real estate, there are the “while you’re there” costs to consider. If you aren’t handy, you’ll need to hire folks to maintain the home you bought; this can tend to make it harder to recover costs in a short time window. When you rent, your landlord will (or at least is supposed to) handle repairs and maintenance.
— When property prices are at or near peak and may decline to some degree.
This is more unknowable than the others, to be sure — ask anyone who bought a home in 2005–2007 if they would have been better off renting — but up until recently it’s a good bet that many would have said “yes!” to that question. While it’s hard to know, you may be able to glean some clues from studying the market you are in from an economic standpoint. Are jobs growing, and industries in the area solid? Is the market dependent on one kind of industry (some boom and bust, like energy, or military) or is it better diversified? Is the population expanding, stable or contracting? If the local economy isn’t expanding, it can be a better idea to rent than to buy, as the demand for housing that supports property values may be in a waning cycle.