Advantages of Renting

Most people believe that buying a home is always superior to renting. Indeed, many subscribe to the wisdom that real estate is always a good investment. However, this, of course, is simply not true. There are definitely situations where renting a home is the smart choice.

To begin with, it is entirely possible that renting is cheaper. Consider a numerical example. Let's assume you buy a 350,000 home in a nice suburb of a major city. Assuming you get a good mortgage rate of 5 percent over 20 years and you scraped together 25k for your down payment that means your mortgage payments will come out to $1427 a month. But then, to be realistic, a homeowner needs to figure in 2 to 3 percent of the homes value per year to be spent on repairs. That comes out to $729 per month, bring the monthly payment up to $2159. This does not even include any condo association fees or other hidden costs that many times come with owning a home. Depending on the area, the same house could likely be rented for between $1000 and $1500 a month.

Renting a home is also a safer choice than buying. First of all, there is risk of your house temporarily loosing value, based on the financial situation. Of course, "temporarily" can mean up to 10 years. Also, depending on the market and your own financial situation, a fixed rate mortgage may be beyond your means. Opting for an adjustable rate mortgages come with a whole other set of risk. Additionally, the risk of foreclosure is something that the renter simply does not face. Many homeowners depend on two incomes to pay their mortgage, and often do not consider the possibility that own of those jobs might disappear. This is especially a risk in the current economy. A shock to household to income is less of a big deal to a renter, who does not risk the loss of a major asset.