Time and again I hear people (some of them very close to me) refer to renting a house as a waste of money. As I previously mentioned, I don't share this opinion. Today we renewed our lease on our house for the fifth year. Yes, we have been renting our house from the same elderly couple for the past four years. Happily our rent has remained unchanged for the next year, and has increased just 10% since we started renting the house. According to Rentometer our rent is well below average for our zip code. Here are the benefits we are getting from renting vs. buying:
Flexibility - renting allows us to get up and leave at any time. Anyone who has tried to sell a house in the past year realizes that it's not such a simple undertaking in a down market. We are not facing that challenge. Some would say that this sword cuts both ways - we could get kicked out of our place next year. Sure, it could happen, but we have been living here for several years, the owners view this house as a rental property, and they like us because we keep the house well maintained and always pay our rent on time.
No Headaches - if something goes wrong with the house, our cost is zero. Just today I called our landlord and mentioned that we have spotted a minor leak below the kitchen sink. 20 minutes later our landlord was here and the leak was fixed. If I owned the house, I had to either fix it myself (not bloody likely) or pay someone to do it. I pay an all inclusive monthly fee, that covers everything from property taxes, to maintenance to trash collection. When I speak to my friends and colleagues who are home owners the conversation frequently turns to the repairs and housework that they do on weekends. I've got better things to do with my time.
Free Money - quite the opposite of being a waste of money, renting is a low cost financing option that allows me to commit our portfolio to a historically superior investment: the stock market. In a previous post I have written that our annual rent of $24,000 amounts to approximately 2.6% of the value of the house, according to Zillow. If this is the cost to finance my investment in the S&P 500, which has shown an average annual return (incl. dividends) of about 9%, by renting we are essentially making money, not losing money . But house prices have historically appreciated just as much as the stock market. Nope. House prices have historically barely kept up with inflation. Check out this graphic. Don't let the past 10 years fool you.
Far from being a waste of money, if you are a disciplined and diligent investor who does not need someone to force you to save money in the form of a mortgage, renting is actually a way of making money.