Will You Be a Renter For Life?
October 16, 2009 by Karen Weideman
Filed under finances, financial matters
Recently I was talking to a friend. In the conversation, I mentioned that I was going on a business trip to New York and regretted that I couldn’t stay a few more days and site see. When he asked why, I told him that we had recently purchased a home and didn’t have any extra money at the moment. He replied that he had always been a renter and always would be because he liked having the freedom and extra money in his pocket.
His comment really got me to thinking. Would someone really be a renter forever? Here are some reasons why I don’t believe you should rent for life.
1) You will always, always have a payment. When you are 65 years old, you’ll still be paying rent. This is a time in your life when your income will be limited and you won’t need extra payments. Will you be able to afford your medication, rent, groceries, and utilities?
2) The cost of rent will continue to increase. Just as inflation goes up, so will cost of your rent.
3) You get nothing for your money. Figure it out. If on average you pay $1200 per month for rent for 40 years, that’s $576,000. Yes, I said $576,000! And the $1200 per month I figured is a generously low estimate.
4) There is no return on your money. Not only do you get nothing but temporary housing, but your money is not being invested. Think of all the older folks you know that paid $22,000 for their homes. They’re paid off and their homes are now worth 10 times more than they paid for them. If they get into a financial bind, they can always sell their homes.
5) You’ll have something to leave your spouse and children. When I was a teen, my friend’s dad died. I was shocked to find out that her dad had made some very poor financial decisions, one of which was renting the same house for about 20 years. This house was only worth about $50,000 at the time. After he passed away, he left his wife with little to no insurance and his wife had to figure out how to make it on her own, which included the extra burden of rent. Thankfully, she was able to get a low-income loan, but it was not easy for her. That $50,000 house that he rented for so long could have been hers to keep if he had purchased it rather than renting.
The purchase of a home is not for everyone and I’m certainly against buying a home if you cannot afford it. In the long time scheme of things, I believe that buying a home is the best option.
What are your feelings on renting versus buying?
image (c) Karen Weideman
Very short sighted…
As a renter you get to walk away from neighborhoods you don’t like in a heartbeat. Schools stink? Move. Neighbors are loud and obnoxious? Move.
You get to call someone else to come deal with problems.
You don’t have to pay for said problems. That’s what you get for your money, honey.
You can try out more than one neighborhood, more than one city, more than one region without the hassle of major financial encumbrances.
You can try out different styles of houses/apartments, as many as you want. Mid Mod to cottage, you can have it all.
You aren’t tied down to anything.
You can downsize or upsize on a whim.
You can do whatever you want, whenever you want. Owning a home is a killjoy to anyone with a sense of wanderlust.
If something disastrous happens to the property — fire, flood, earthquake — you collect your renter’s insurance and walk away from it.
Also, you will always have payments with a house as well — property taxes, repairs, renovations, remodeling projects. Buying a house attaches you to more financial strings that renting does. And anyone with half a brain budgets and saves well enough so that they can afford their housing into their senior years. You’d have to be an idiot to get to retirement and be surprised that your SS doesn’t cover everything and you still have to pay rent. Come on.
And the cost of buying a house will also continue to rise, as will all the costs of owning a home. Buying a house doesn’t lock you into steady payments by any means.
Lynn: Buying a house isn’t for everyone; it’s especially not for those looking to wander from city to city. Buying a home does provide a steady payment, stability, and is a financial investment. It would be great if everyone did save enough to buy a home in their senior years, but the majority will not.
I don’t want to buy a home in my senior years, that’s the point. Who says that just because I’m old I want to stay in one place? Why would I want to worry about keeping up repairs when I’m older? That’s the point.
And if I can’t afford something I really like, I’m not going to buy something that’s just ok because people are telling me I should own a house. Bollocks.
Some of your points are short sighted as well.
Yes, there will be property taxes and home repairs, but the cost of those is far less than rent. It’s like buying a new car versus owning an older car. Some people go out and buy a new car because their old one needs repairs. The $1200 in repairs is much cheaper than the payments.
Homeowners have insurance as well. If it burns down, you can rebuild, rent, or do whatever you want.
As far as neighborhoods and schools go, you should check the neighborhood or school before renting and buying.
If buying a home isn’t the thing for you personally, that’s ok, but financially it’s the best investment with your money.
We are currently renting but we’re in school and job searching for my husband. We rented because we were able to get a MUCH better deal renting (well, on this house, from our phenomenal landlords!!!) than buying in our particular area. We know we won’t be renting forever – and honestly, we HATE renting. We’re so ready to BUY, but we just didn’t feel it was wise given our situation (knowing that a job may take us a couple hours away from my husbands schooling).
But, honestly, and more importantly, we’re just thankful to have a roof over our heads – no matter how it’s being paid for!
Terra: I totally understand. We had to wait for me to finish school and then my hubby was in school too. It all came together for us, eventually. Renting was great for us until we got on our feet. I hope everything goes well for you both.
My parents purchased their home in 1968. They never left and paid on it for thirty years. Over time the cost of living rose, but their $200 a month payments never went up. After they retired, they made the final payment and were able to live in the home payment-free for several years before they became sick and finally died.
I’d say the home purchase was a good investment for them.
Laura: Thanks for your comment. I’m looking forward to the day when my house is paid in full!
I think as a homeowner you forgot a few things in that expense account.
Being a renter means that I pay about 10% for insurance vs what a homeowner does.
So lets add medication, rent, groceries, utilities, renter’s insurance (rent) vs medication, groceries, utilities, home owners’ insurance (owner).
If the refrigerator, washer, dryer, hot water heater, plumbing has a problem. I don’t pay for it.
So at this point we have medication, rent, groceries, utilities, renter’s insurance (rent) vs medication, groceries, utilities, home owners’ insurance, and major appliance repair, utilities repair.
As a renter, I don’t ever have to pay property taxes unlike a homeowner, who even after paying off their home, has to continue to pay property taxes which will increase over the years. And in some cases, depending upon the property, this can be at least half of a year’s worth of rent.
So at this point we have medication, rent, groceries, utilities, renter’s insurance (rent) vs medication, groceries, utilities, home owners’ insurance, major appliance repair, utilities repair, property taxes.
And as a renter, I never have to worry about the loss of value of my home as so many are dealing with today, paying much more on their loan than their home is worth. And in fact, our rent got lowered when we signed the new lease. For the past five years, every year, rent has gone up $25. This year, the rent was dropped $125.
As for leaving something to your spouse and children, what if the home isn’t paid off? A spouse has the option to continue paying for the home, or put it up for sale. Its the same living in an apartment however, I have less expenses than an owner with payment.
If you leave the home to someone in your will, and the home isn’t paid for.. well.. again. They either pick up the payments or sell the home. IF the home is paid for, then you leave them the burden of the additional bills of utilities, home owners insurance, major appliance repair, utilities repair, and property taxes. And of course, there’s that little inheritance tax burden also.
So tell me, as a homeowner in the “golden age”, will you be able to choose which to pay between property taxes, appliance repair, utilities repair, property taxes and groceries, utilities and medication on your fixed income? Oh yea, and don’t forget little things like mowing the lawn, general repair and upkeep, replacing a roof, replacing carpet over 20 years, shoveling snow out of the sidewalk and driveway…. among many other things that being a renter, I do not have to concern myself with.
CONCERN YOURSELF? No, but…
…You, my friend ARE PAYING for the appliance repairs, homeowners insurance, new carpet, new roof, snow shoveling, lawn maintenence, and all other home repairs, PLUS you have to pay for renters insurance too. WHAT FREEDOM?
Do you think the landlord is doing this for the fun-of-it. NO, He is making money off of your rent payment. SO, he is paying all the expenses on the home you are living in, plus the one he is living in, with YOUR RENT MONEY.
At the bottom end of the rental market the cost of renting seems to be proportionately higher. As the property value goes up, it becomes much cheaper to rent. Apparently there is a limit to what owners feel they can ask for in rent even on a giant single home. In my area a basic condo townhouse costs ~125k and can be rented for $1100+utilities. A single home worth $300k+ rents for $2400+utilities.
When we first married we bought the basic townhouse and stayed for 7yrs until I’d finished my degree and got a job and we’d saved 30k for the land for our dream home. If we’d stayed there we’d have been mortgage free after 10 years. We could have invested a mountain of money in the years since then. Instead we sold it and built our dream home on 3 acres in the country. Fast forward and we’ve been married 25yrs this past summer. Dream house was built for $280k and is now worth ~500k. Mortgage is down to $180k. We’ll be mortgage free in 5-6 years if we stick to our frugal living plan. At that point we’ll “only” have the annual $5k property taxes, $5k utilities, and in the 40yrs we hope to be in retirement, we’ll have to reroof 2-3 times ($8k each), replace windows 1-2 times ($25k each), replace furnace, septic field etc etc. If I average out the cost of all of the monthly costs plus a portion of the expected maintenance, we’re going to reduce to monthly payments/saving targets equaling rent on a nice enough single home that someone else owns and worries about. Do we need the 3000sqft custom home when for the same cost we could rent something perfectly nice but more modest? How much is that bit of extra space and pride of ownership worth?
Makes me wonder if living in our “dream house” has all been worth it. We could have been mortgage free for the past 15yrs and just lived a more modest life. Assuming we’d invested the money we’ve spend by owning the bigger house all these years we’d be able to retire now in our mid 40s.
I think maybe the problem with the rent vs own dilema is that it seems that once you buy the first house, you constantly have your eye on the next move up the ownership chain. Most people don’t stay in the first place they buy. The whole idea of a “starter home” implies it’s only temporary. Sort of a house with training wheels. I suspect long term renters are not seduced to continually move up to bigger and better. Perhaps an upgrade from your student digs to something nicer/safer once you’re working full time, but after that?
So here we sit with ~$325k and climbing in equity which we’ll only bennefit from if we sell the house. We have $250k so far in retirement savings so we’re working well toward funding our post 9-5 lives, but I keep thinking that I could retire a whole lot sooner if I freed up the equity and either downsized and bought something very modest, or cash out completely and rented.
Designing, building and decorating our home consumed my every waking thought for many years. I loved the designing and DIY sweat equity that went into it, but now that it’s done I don’t care nearly so much about having it. Maybe I’m having a midlife crisis? We always intended to live here forever, and my husband is still in that mindset. Now I’d rather live in a modest place so we can semi-retire now and travel half the year. Just can’t get DH to see it that way…yet.
One reason why I’m glad I’m not renting: my garden. I can plant what I want, where I want. I can grow fruit trees and flowers, vegetables and grass. Most homes in my city have rocks in the front and back instead of grass. Because I own my home, I was able to put in grass, a merry-go-round, an in-ground trampoline, and swings (taller than the ones at a park, and my children can play outside while I make dinner).
I’ve done both, but my garden makes it all worth it to me!