According to the New York Times, homeownership in the United States has been falling for eight years, down to 63.7 percent in the first quarter 2015 compared to 69 percent in 2004.
While it’s long been the American Dream to own a house with a white picket fence, the Great Recession proved homeownership is not always as glamorous as it seems. Many people lost their homes and ruined their credit, making it difficult for them to get mortgages again.
At the same time, many millennials saw their parents and peers struggle with a tough housing economy, making them much more cautious when it comes to homeownership.
For all these reasons, many people choose to rent long-term instead of buy a home. This can actually be a smart choice financially, especially if you move frequently, don’t have job stability, or enjoy the freedom of being able to live where you want when you want.
While it won’t be a popular choice since our society is set on home ownership as a sign that you’ve “made it,” sometimes renting long-term can be the right choice.
If you own a home, it makes up a significant portion of your net worth. However, that also probably means much of your money is tied up in your house, which fluctuates in value depending on the economy and isn’t liquid like other assets.
Most of the time, homeownership can be a lucrative as long-term investment. For those who wish to have a more diverse portfolio of investments, whether in the stock market or other more liquid sources, long-term renting allows them to better accomplish this.
As a renter, you don’t have to pay for a large down payment to get into a home. You don’t have to pay for repairs or to upgrade your appliances. You also don’t have to pay property taxes or closing costs, which can run thousands of dollars.
Because of all of this, you can use your money to invest heavily instead, which is actually a stronger financial position to be in for many residents of certain U.S. cities.
A recent study by professors at Dartmouth College and the University of Warwick found an increase in homeownership within a region can result in an increase in unemployment, and thus, unhappiness down the line.
Their hypothesis centers around the fact that because people get stuck in their homes, they can’t move to take advantage of better paying jobs. They also typically don’t work in the places they live, leading to long commutes. Their study also finds that fewer businesses are created in these locations where homeownership rates are high.
Renting instead of buying a home can be a great option because of the freedom it provides, including the flexibility in your career. For instance, if you received a great job offer several states over, you wouldn’t have to worry about spending the time and money to sell your home and buy a new one.
If you want to take a year off to travel or write a book, there’s no property or mortgage payment to hold you back.
Investing in an appropriately priced house for your income can certainly be worthwhile. However, for people like me who move frequently and don’t know where their job will take them, long-term renting is the best financial move.
I plan to be a renter for at least another 10-15 years, until I have a better idea of where I will be living long-term. The last thing I want to do is save up a significant down payment and pay closing costs only to find out three years later that we have to move again.
The day will likely come for us, but for now, renting is just fine with me, even if it might not be the typical “American Dream.”
3. Low Costs
People spend thousands of dollars per year maintain and upgrading their homes. This might include a new kitchen, appliances, roof, or a new deck in the backyard — the list goes on. While this is more than fine, especially if you can afford it, it’s also a reason why many people prefer renting so they can save their money for other things.
Many people take out home equity loans to create additions or improvements, which can be a problem if they want to move and owe more on their home than it’s worth. As a renter, you can choose to live in a more upscale neighborhood in a nicer home than you could afford on your own.
Many people do this in areas where it’s extremely expensive to buy a home, such as California and New York. I personally live 14 miles outside of New York City. My rent is high and takes up a larger percentage of my income than most people. But I wouldn’t be able to afford an actual home in my neighborhood for at least a decade or more if I were to buy instead.
Renting allows me (as well as many others) to afford to live in nice, safe accommodations, in an excellent school district right outside of the city without having to foot the bill for pricey repairs or upgrades ourselves.