Renting as a Way of Life?
Jessica wants to know Dave's thoughts on renting long-term and not buying a home. Dave thinks it's financially unwise in most cases and explains why.
QUESTION: Jessica from My Total Money Makeover wants to know Dave’s thoughts on renting long-term and not buying a home. Dave thinks it’s financially unwise in most cases and explains why.
ANSWER: They do, but in most cases, it’s financially unwise. As an example, I am 51, and the houses that I used to sell for $38,000 when I was 18 years old versus 48 years old—so 30 years ago—would now sell for $238,000. The rent on them when they were $38,000 was probably $200 a month, maybe $300 a month. The rent on that same home today would probably be $2,000 or $3,000 a month.
The problem is throughout the scope of your life, you’re going to pay more every single year to be a renter. By becoming an owner, you can lock in the vast majority of your expenses and the home goes up in value. Under today’s law, if things stay the same, on your personal residence, you can make a profit when you sell it of up to $500,000 without any taxes on it. Because it is a tax-free investment, because it is a good investment, and because you lock in or limit the increases in your cost of housing, it becomes a good investment. It is a hedge against inflation. If you’re going to stay in the same area and you can get yourself in a position to own a home, it turns out to be that it is a better thing. Yes, you do have the hassles of home maintenance or yard work—those kinds of things—but even if you were to pay for those things, you still would come out ahead.
I would not say that renting is a way of life. I will tell you a lot of people get in too big a hurry to buy, and I think renting for a period of time—longer than some people think—is a good thing. For instance, sometimes military families are moving every two years. They probably need to be renting while they’re doing that. Otherwise, they end up stuck in houses every time they’re stationed in a new place. There are times that renting turns out to be a good thing. Sometimes, you need to wait and get yourself out of debt and get your emergency fund in place. Do those kinds of things before you buy. Then renting is patience. Renting over 50 years as a way of life does not come out to your benefit. That’s why people, for so many years, have said home ownership is a good thing.