Homeownership is commonly considered a sign of success, but in some cases, it can actually work against your financial goals.
While buying and renting can both be good options under the right circumstances, I tend to believe people underestimate the hassle of owning and the benefits of renting because they are hardwired to do so.
Let's face it: most of us have a deep-rooted feeling that homeownership equals success and buying equals progress. Renting, on the other hand, is often seen as a form of failure—or even "settling." If you can't afford to buy, you just rent because you need a place to live, right?
I think this line of thinking is dangerous, and I share this opinion with my clients often.
Before you commit to buying, it's important to note why you're doing it in the first place. If you're considering a home purchase to appear successful, you're setting yourself up for failure. If you're shopping for a home because you feel like it's a natural next step, you're making a mistake.
The Case for Renting
Renting may not feel like progress, but that doesn't mean it's not the right move for you. The fact is, renting comes with a ton of huge benefits, including:
Maybe you prefer to move around, seeing new neighborhoods and cities. No matter what, it's hard to put a dollar value on that experience and enjoyment. In addition, if you anticipate a career or job change, renting might suit you better, as buying a home can hinder your flexibility to pick up and move.
2. Avoiding homeownership costs.
Homeowners are painfully familiar with unforeseen and often hefty costs such as furnishing, decorating, leaky pipes, landscaping, general maintenance—you name it. As a tenant, you enjoy the perks of your home without the worrisome financial burden.
Generally, you can't turn a house into cash overnight. Many people invest their life savings into a home, putting the bulk of their net worth into an illiquid asset. Risk comes with tying up a large portion of your wealth in such an asset. Renting allows you flexibility and other investment options.
4. Building credit.
As consumers, we need a healthy credit score for pretty much everything we do, from getting a new cell phone plan to buying a car. While renting doesn't boost your credit rating like owning a home might, creating a history of on-time rental payments can, in some cases, help build your credit to qualify for a mortgage down the road. This history begins when (and if) your landlord reports your payment data to credit agencies. Third-party services can help you report this information on your behalf.