Is Renting Better Than Buying?

by Amy Suardi, of Fruga-Mama.com and Buttoned Up’s Savings Expert

I confess that I’m 40 — whoops, make that 41 — and I have yet to buy a house. Not that I don’t want to. Lack of funds and a vagabond lifestyle have conspired to keep us writing those rent checks, even as we raise a family.

I do look forward to buying a place someday. Partly because it just feels good. Partly because I want to live free of a landlord’s whim.

But not all agree that buying a house is the best investment.

Is a House Like a Mutual Fund or a Used Car?

Emily Peck of the Wall Street Journal’s Juggle column argues in Why Homeownership is a Bad Idea that, “One of the lessons of the housing bust has been that a home is not a sure-thing investment. A point driven home recently by WSJ.com columnist Brett Arends, who writes that the real return on buying a home is lower than buying government bonds.”

That said, buying a house is not just a financial decision. Amidst warnings not to overspend, marketing genius Seth Godin points out in How to Buy a House:

A house is not just an investment, it’s a place to live. This is the only significant financial investment that has two functions. Things like cars and boats always go down in value, so most of the time, if you’re investing, you’re doing it in something that you don’t have to fix, water, fuel or live in.

You’re probably not going to be able to flip your house in nine months for a big profit. Maybe not even nine years. So … imagine that there is no financial investment, just a house you love. And spend accordingly.

Finally, Get Rich Slowly has a thorough article that explains ways to figure out whether renting or buying is more advantageous for you: Does Renting Make Sense?

You can also try the New York Times Rent Vs. Buy Calculator.

Reasons to Rent Instead of Buy

As home prices continue to fall in mid-2010, analysts are arguing more than ever that the American Dream may have to be redefined. Besides the gloomy predictions that homes may no longer serve the dual purpose of living space and nest egg, here are some more reasons why you might consider renting your abode:

1. The obvious: You don’t have a down payment, you can’t afford the mortgage installments, or you can’t qualify for a loan.
2. You might be moving in three years or less. These days, the amount of time you need to stay in a house for it appreciate enough to cover inflation and closing costs might be much longer.
3. You are not handy, you don’t have a green thumb, and you don’t ever want to unclog a gutter. (I have admit, I love being able to call the management company when the furnace breaks, the sink drain is slow, or the dishwasher goes kaput.)
4. You are new to a city and you know very little about area. Renting can be a great way to buy time as you figure out where you really want to live. (A house is not an island. Finding the best neighborhood should be the first step in your search.)

On the other hand, if you’re not good at socking money away for the future, buying a house is like forced savings. The down payment and all those mortgage checks can be like making deposits into a savings account (as long as you stay in the house long enough not to lose money).

After almost ten years of renting and moving, my husband and I are hoping to settle down next year. Since we are planning on staying put, we will probably buy.

Having had experience living in apartments, condos, townhouses and single-family homes, we kind-of know what we want. And that’s a good thing when you plunk down your life savings.

Amy Suardi has written about finding low-cost movers and good rental houses on her blog, Frugal Mama.