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Millions of Americans rent properties across the country. Sometimes people who are renting decide they want to buy a house not because they are really interested in doing so, but because they have been told over and over again that renting is “wasting money.”
This perception that renting is a waste of money is probably due to the fact that the rent you pay does not help you acquire home ownership. Unlike when you make a mortgage payment, you’re not building equity or getting closer to owning a valuable asset free and clear. Instead, you are likely paying your landlord’s mortgage and something else with your monthly payments.
But while there is an argument to be made that rent payments are not a wise use of money, the reality is that there are many circumstances where renting is the best financial option.
Renting buys you a roof over your head
The bottom line is that renting is not a waste of money for most people because it buys them a roof over their heads. Everyone needs a place to live, and if buying a property is not possible or not a good financial option, then renting is probably the best option.
And in many cases, renting is actually the best financial move and property ownership could be more wasteful. This can happen, for example:
- If real estate prices are in a bubble and you’re renting while you wait for them to go down: In this case, buying a house would probably be a waste of money because if you bought the property at a high price and the bubble burst, you could lose thousands of dollars.
- If renting is much cheaper than buying a comparable property: If you have to pay much more each month for your mortgage than you would for rent, you’ll be putting too much cash into real estate when there could be better investments out there. You could end up with a higher net worth if you rent and invest the difference.
- If you have to move soon: The transaction costs of buying and selling a home can be very high. If you have to move in a few years, the property could be throwing away more money than rent because you won’t get back the closing fees you paid.
And these are just a few of the many examples where renting isn’t a bad option, but rather the best way to have a place to live while doing other smart things with your money.
Should you rent or buy?
You should never buy a house just because you think paying rent is wasteful. You should buy a home only if you are in a good financial position to do so, can find a property at a reasonable price, and will stay in that property for a while.
If you don’t meet these criteria, don’t feel bad about sending money to a landlord for a comfortable place to live, even if it means you’ll end up renting forever if you move frequently and don’t want to settle down. estate. While you won’t end up with a house in the end, you could still end up with a higher net worth than you would have if you bought a house at a time that wasn’t right for you.
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