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12 Suprising Benefits Of Renting vs Buying You Must Know
Is Renting the New Smart Norm To Build Your Wealth?
This myth that "renting is throwing money away" is wrongheaded. In fact, it's dangerous. It oversimplifies a life-changing, six-figure decision. Rent vs. buy debate as less financial and more about lifestyle. In fact, lifetime renting is the norm in many other parts of the world.
1. With renting you have way more flexibility
To move location, to walk away after a lease and to save for other assets. Renting gives you an opportunity to live where you want without the major commitment that a purchase would entail. If you're young and want to travel and don't want to be encumbered by a mortgage the renting might be for you.
2. Maintenance is taken care of
Water heater bursts. Call the PM or emergency after hours plumber (notice these things always seem to occur outside of business hours?), and it'll be fixed/replaced within 24 hours.
3. You have a greater choice to live in a nicer suburb
It's less initiall outlay than if you bought), you have freedom, but at the end of the day you have no asset. When you live in a high-end district, ignoring the fact that luxury apartment buildings typically have amazing landscaped common areas, you have literally a multi-billion dollar back yard that is your city.
4. Renting its a more effective use of capital
The person who rents has a far greater cash flow position than the person who buys if they managed their money and saved the difference. If you did have enough savings for a deposit – putting those savings into other assets would've made you more money (and means you can choose to buy a property at any stage anyway).
5. Investing in index funds is much easier, safer, and cheaper than housing
In many cases, even if you double your deposits at a later date, you may never catch up to people who start saving earlier. If you are renting and saving as you go along, you will be able to make decisions more wisely and perhaps have multiple sources of income rather than saying that this extra money that I have should go into my loan account.
6. Did you know £500,000 in a bank will rent you effectively a £1m house?
$650k invested would support rental of a property costing $26000/annum (in todays dollars, increasing with inflation), likely indefinitely without touching the principle. The reality is if you sell your £500,000 house, £500,000 in a bank will rent you effectively a £1m house which you can easily pay for from your bank deposit interest and still have spare cash, and it gives you all the flexibility you might need later in life.
7. And what about inheritance?
If you worry about inheritance, you can always leave your kids a bunch of cash rather than a house. Save 50% of your salary, period. Make that your goal.
8. The rental yield is going to be lower
With rental yeilds as low as 2% you can always get that nice house you want at a fraction of the cost to buy it. It’s simple, is the rental yield (rent cost/price of property) you’re paying more than the interest rate you would have to pay if you bought? For the vast majority of Australians the rental yield is going to be lower. And this is not even factoring in all the other crap that comes along with buying.
9. But I live in Australia! If I'm 35 and don't have a property, she won't dating me...
Australia is a bit unusual when it comes to attitudes towards renting as there is a bit of a stigma against renters like "you're renting, not because your money working harder in other investments, but because you have pissed it away on fags and booz and partying all the time." That's what other people will think about you. If you lived in New York no one would ever ask you if you own your own home. Just screw it :)
10. Rent is a consumption spending, not "dead money"
Just like food, petrol, train tickets, movie tickets, playstation games, hotels and holidays ... only its a essential item, so it would least be considered dead money, unless you enjoy living with your wife and two kids out of a station wagon. Point is, you need a roof over your head, if you are paying rent while saving for a deposit and it's less than loan interest then it's not really dead money. It's an expense that allows you to save for a deposit, the same way petrol expense allows you to get to work and earn an income.
11. Don’t get caught up in the stigma and shame on renting
At the end of the day if all you want is a roof over your head and four walls to store your stuff, then by all means rent. Don’t get caught up in the stigma and shame on renting, break down the numbers and work out what actually costs more. If it’s cheaper to buy then, by all means, go ahead and buy, if it’s cheaper to rent, ignore the misinformed who try to make assumptions that you can’t afford to buy or that you must be doing it wrong.
12. Embrase the motto “Spend less than you earn, invest the rest, avoid debt"
The new smart norm may be renting for working life and saving for a good retirement.
Helping People to Be Really Realistic
by Alex Ershov @ 2019
Save Thousands Of Dollars
Make Right Decision
— "Dude this is radical. I love it."
— 1375 upvotes 👍 • 181 Comments on Reddit