Renting Versus Buying A House - A Must Watch Before Purchase

Renting Versus Buying and How To Throw Your Money Away

One long-standing discussion in the world of personal finance is the advantages of renting versus buying. Advocates of renting praise the advantages of renting because it allows the consumer to "purchase larger items, like homes and cars, that ordinarily might not be feasible, and smaller items, like computers or TVs that might only be needed on a short-term basis. The only problem is that when renting, you are not "purchasing" the item (like a home). You are renting. And there's a difference.  

Let's assume you will need a home for as long as you live. If you buy that home, at some point mortgage payments will end, and you will have an asset that you own (your home). When you rent, you may get a bigger house up front (that's debatable too...rent payments are generally higher than mortgage payments...the homeowner wants to have some positive cash flow in addition to owning the home), you will make payments forever, and never own even a piece of the house. 

Over the long term, a home is an appreciating asset (based on historical precedent). Cars, appliances, and furniture are (in general...there are always exceptions) depreciating assets. Eventually, that car will be worth $500. Eventually, the TV will break. But a house generally keeps going up in value over the long term.

From a recent article by Woody Alpern from americanchronicle.com:

Now that you have a better understanding of why renting vs. buying can be more affordable, you realize you can save money and still buy more, eliminate impulse buys and not be required to maintain its upkeep. Many find commitments to paying off debts from purchases unfavorable and a hindrance. The advantage of renting is that you are not required to pay high-interest fees, mortgages, or sign any long contracts. You can slowly build up a positive rapport with the item's owner, perhaps even boosting your credit score. 

Instead of buying, you can rent what you need or want without remorse. Renting vs. buying is an ideal scenario for individuals trying to save money and cut costs, but still, want the best possible home, car, gaming system, furniture, etc. available for their hard-earned cash.

For "individuals trying to save money", Alpern is referring to short-term cash flow. The only consideration in the argument is the month to month out of pocket expense. It's also important to remember that when you rent a home, you are certainly signing a contract. 

One point of agreement: if your credit is challenged, you may be better off renting for a period of time while you build up your credit score. That will result in a lower mortgage interest rate and more manageable payment.

But overall, the advantages of buying your home (an appreciating asset) in terms of increasing your personal wealth long term are enormous. Instead of paying money to the landlord, you are paying into your own personal net worth.

Of course, consult a professional when making big decisions like renting versus buying a home!

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