A client of mine, Carol, remembers accidentally throwing away a check she needed for a field trip. She was scolded for ‘throwing away money’ and ever since she has been terrified of making bad choices with her money. One of her main goals was to stop renting so she could stop, ‘throwing away money.”
The conventional wisdom that renting = throwing away money is so pervasive that we can actually throw more away in chasing the dream than we do renting. The goal of this post is to help you think through the decision so you can make the best financial decision for your life now and the life you want in the future.
When Carol’s landlord told her she’d have to find a new place because he was ready to sell the apartment, she was eager to buy. By the time we were having our conversation, she had already started looking for other apartments to rent and only saw small, dirty places that were far too expense. You know, New York City. She came to me saying, “I don’t want to keep throwing money away in rent, especially when this is the place of my dreams.”
Renting for her would allow her to build up cash reserves and start investing so she could make more in the stock market than holding it all in this one asset that would be very costly. Once we had taken the dream like state out of the equation, she actually told me that if she would buy, it wouldn’t be this place. She didn’t like the layout. We actually pulled the money out of the trash and showed her that this “investment” would have been throwing far more into the trash than she realized.
So, I ask, as so many of us start to think about buying homes and trading up in this market, that you don’t fall back on the conventional wisdom that home ownership is always better than renting. You can do the math – this website is very good at breaking it down.
I also have some helpful rent vs. own calculators that take into account some critical costs and benefits of home ownership and compare it to the rent + investment opportunity you have if your money is liquid. More to come!
Worth Builder 
A very good article on a very old debate. In our part of the country, it’s a bit different because housing prices are so low compared to relatively high rents for virtually identical properties. I think you have to compare these factors as well. Sometimes it still makes sense to buy even if you plan on moving on ten years down the road if you can still save money each month. At http://www.LookAtMyHomes.wordpress.com, you’ll find articles that cover the pros and cons of both renting and buying in western Pennsylvania. Thanks for a well reasoned article with a real world example.
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Lori, thank you so much for comment. You’re absolutely right – the decision to rent or buy is totally dependent on where you are, your interest rates, tax rates and comfort investing. All I want to share is that you should always do the math, and try to find the best data you can for your area. That way, you’ll know that you aren’t jumping into a huge decision based on an assumption that “housing prices always rise”.
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