There’s Nothing Wrong With Renting (2024)

FAQs

Is renting really throwing money away? ›

That's not true. In fact, the top-selling financial author of all-time, Robert Kiyosaki, says, “A home is a liability, not an asset.” An asset puts money into your pocket every month. A home takes money out of your pocket every month. Some say, “Paying rent is like throwing money away.” That's not true either.

No tax deductions. No equity. No rising property value. So even though you're spending your rent money on an important living expense, you might feel like you're not making progress with your money.

However, financial expert Dave Ramsey disagrees and suggests continuing to rent until you're financially ready to buy a home. This means you've paid off your debts, saved up a large down payment and have a sufficient emergency fund, all of which help provide stability so you can enjoy your new home in financial peace.

Tight home inventory, high mortgage rates and rising costs have many affluent individuals ditching the downpayment for a security deposit. The number of households making over $150,000 that rent rose 87% from 2016 to 2021, according to the U.S. Census Bureau.

Is renting cheaper than buying? On a per-month basis, renting tends to be cheaper than buying — at least it has been in recent years, according to a LendingTree study. The average monthly cost for homebuyers applying for a new mortgage was $1,844 in 2022, according to data compiled by the Mortgage Bankers Association.

When people say renting is throwing away money, they often have a specific calculation in mind, and it is based on certain assumptions. One is that the full balance of what they pay each month is going to waste and that if they were putting that towards a mortgage instead, that would be like money in the bank.

Measures of overall happiness confirm that homeowners are more satisfied than renters. Homeowners rate their overall happiness as 7.5 out of 10 on average, compared to just 6.2 for leaseholders. Homeowners and renters agree that the top benefits of ownership are privacy and stability.

Renters have lower utility bills, greater flexibility in where they live, and access to amenities, such as a pool or fitness room, that might otherwise be prohibitively expensive.

One can argue that from a financial perspective, renting is a less stressful option. That's because your housing costs are locked in for the duration of your lease. If you sign a 24-month lease where you agree to pay $1,500 a month for your apartment, that home isn't going to cost you more during those two years.

A popular standard for budgeting rent is to follow the 30% rule, where you spend a maximum of 30% of your monthly income before taxes (your gross income) on your rent. This has been a rule of thumb since 1981, when the government found that people who spent over 30% of their income on housing were "cost-burdened."

What is the rental income 1% rule? ›

The 1% rule of real estate investing measures the price of an investment property against the gross income it can generate. For a potential investment to pass the 1% rule, its monthly rent must equal at least 1% of the purchase price.

Abiding by the 30% rule as the de facto personal finance rule is outdated and does not accurately reflect today's living expenses. To start, averages, by definition, do not take into account the huge variations in what individuals do.

There are some financial benefits to renting. The most obvious benefit is that the renter does not have to pay property taxes. Aside from that, there are other financial benefits that the renter may incur. The renter may not have to pay for or spend time with upkeeping the yard or the property.

Most wealthy people tend to be entrepreneurial and prefer to invest in their own business or other forms of investment. Plus, not to mention all the hidden costs of owning a home such as property taxes, maintenance fees and unexpected repairs all on top of the monthly mortgage payment.

The number of millionaire renters has tripled in the past five years. More and more millionaires are stepping on the everyman's corner and renting apartments rather than putting down roots and money to become homeowners.

It is extremely common for landlords to have rental losses, especially in the first few years they own a property. Indeed, IRS statistics show that over half of the filed Schedule E forms reporting rental income and expenses each year show a loss. If you have a rental loss, you have plenty of company.

While recessions can create downward pressure on rental rates due to decreased demand and financial hardships tenants face, the extent of the decrease and its duration can vary depending on location, market conditions, and government interventions.

While paying rent may save on short-term costs, using a mortgage to purchase a home is a long-term investment in the future of your financial security and independence. There are a myriad of practical reasons why you should consider the long-term benefits of investing in a home with a mortgage.