I am a huge proponent of homeownership and real estate investment. I think it is a great way to build equity and create individual wealth. However, owning a home is not the best choice for everyone. There are many scenarios where renting a home makes more sense than buying one.
Buying a Home Would Wipe Out Your Savings
If someone is putting all of their life savings into buying a home, that makes me nervous. Homeownership is great but financial stability is better. Don’t wipe out everything you have saved just to buy a home. Rent a little longer and continue to build up your reserves. Before you purchase a house, make sure you have a stable income and enough saved for a down payment, closing costs and several months’ worth of mortgage, insurance and utilities. It is also smart to have an emergency fund for unexpected expenses.
You Aren’t Ready to Be Your Own Landlord
One of the perks of renting is not having to be responsible for the maintenance. Once you become a homeowner you are responsible for everything. Mowing the lawn, leaky pipes, appliances on the fritz? There is no landlord for you to call and have things fixed. If you aren’t ready to take care of the maintenance on a home, it might not be the right time to purchase one yet.
We Are in a Seller’s Market
The real estate market ebbs and flows over the years. Sometimes we are in a buyer’s market where there are more houses for sale than buyers, giving prospective homeowners more options to choose from without having to pay top dollar. When we are in a seller’s market, the opposite is true. A seller’s market is very competitive because there are more buyers than there are homes for sale. Buyers often have to pay more for a home than they normally would just to beat the competition. If you are in a comfortable renting situation in a seller’s market, it might make sense to wait for the market to balance out before purchasing a home.
You Don’t Plan on Being in One Location for More than 5 Years
Another benefit of renting is the flexibility. You are only tied to the apartment for the term of the lease. After that you are able to renew or move to a new location. If you don’t see yourself living in one place for more than 5 years, purchasing a home might not be a good idea. It’s true that homeownership builds wealth but that wealth comes from your home’s equity. Equity takes time to build. Buying and then selling a home within the span of a few years very rarely yields a huge profit when you factor in the maintenance, insurance, taxes, commission, and closing costs. If you haven’t built enough equity, you may actually lose money.
Bottom line, it is not always better to buy a home. Everyone’s path to homeownership is different and you should do what makes sense for your unique situation even if it takes a few more years than you anticipated. Either way, there is nothing wrong with renting until the time is right.