Is Renting Always "Throwing Money Away"?

It's undisputed that the purchase of real estate is usually a profitable investment. But if you're not in the game to make money through juggling properties and closing deals like a late-night infomercial slimeball, you're probably just interested in buying just one house - and perhaps your first one. Since I constantly hear people tell me that renting is "throwing money away" I wanted to take some time to refute that. While buying a house or condo does turn out to be a wise investment for many people, it's simply untrue that renting is universally wasteful for everyone. In fact, I consider it to be a reasoned and even shrewd way for some of us to live. It just depends on what you value.

Is Renting Always "Throwing Money Away"?: Opportunity Costs in Buying a House

Often, some people invest so much time in maintaining their house and fixing it up that the value they add to the property is undercut by the time, energy, and financial cost involved in making the improvements. Without becoming overly pedantic, I have to point out the opportunity cost consideration. If, over the course of just one year, you spend 200 hours and several thousand dollars fixing up a house to raise the property value by $20,000, you have to ask yourself whether the extra time and expense was worth the payoff. Perhaps it was indeed the best use of your resources, and perhaps you found it fulfilling.

But there are questions you should ask yourself, just to be sure: Could you have spent the time and money on education, which also pays off in the long run (arguably far more than a real estate investment)? Could you have earned close to as much by working more at your current job? Or pursuing a profitable hobby? What if you significantly cut back on your other expenses and just enjoyed the extra free time more frugally? What about taking some money and investing it in something that requires less effort? I can't answer those specific questions because they depend on your values, yet they're questions everyone should ask before making such a forebodingly large purchase.

Is Renting Always "Throwing Money Away"?: The Mental Commitment

Purchasing a house represents a mental commitment that some of us aren't willing to make. Even though buying a house or condo does not necessarily mean keeping it for a lifetime, it can seem that way. Think of the mounds of paperwork you sign at closing and all the extra responsibility that comes along with owning the property. You now have to fret about its value. You have to think about how quickly you could sell it if you needed to move. You can't easily change your mind and move to a different city or neighborhood without a lot of extra hassles. If you're "settled" in your life, these things may not be a problem, but if you value spontaneity and freedom over practical obligation….well….what are you doing buying a house?

Is Renting Always "Throwing Money Away"?: Unpacking the term "home"

I've been very careful not to use the word "home" to describe an unoccupied house in this article. Realtors like to use the word "home" to sell houses (and to some extent, condos) because they tap into social mores for their own financial gain. Really, they're not selling you a home: they're selling you a dwelling that you can turn into your new home. The life that you bring to a space you inhabit - rented or owned - that's where the concept of home really lies. It may seem like I am mincing words, but I want to challenge some of the assumptions people make about what it means to have a "home" and what it means to be a "homeowner." Better yet, what does it really mean to "own" something anyway? I'll stop the philosophy there.

Is Renting Always "Thowing Money Away"?: More practical matters

Owning a house comes with countless costs that few people consider when they're caught up in the fanfare of house-shopping. Often, to take advantage of the whole American ideal of owning your own property, you have to spend even more money to fill it. Maybe now you have a porch, but you have to fuss over other accoutrements to render it useful. Maybe a grill? Some chairs? Outdoor carpeting? The same considerations go for recreation rooms, spare bedrooms, garages, and the like. When you buy a house, you're not just spending your money on the structure and the land; you're opening your wallet for a bevy of other stuff that you may not need, though you'll probably feel that you do.

Is Renting Always "Throwing Money Away"?: People with bad credit

Some people are so eager to buy their first house that they accept a high interest rate due to less-than-stellar credit. Rather than buying immediately, when they only qualify for less favorable terms, these people may want to wait a year or two, continue renting, and focus on cleaning up their credit history. While waiting a few years delays their chance to build equity, it also means they'll be paying greatly reduced interest. Sure, these people could buy now at the high rate and then refinance as they credit improves, but in most cases, they're still better off waiting.

Is Renting Always "Throwing Money Away"?: The Condo Option

Some people note that owning a condo lets them retain some of the benefits of renting (fewer responsibilities) while taking advantage of the investment aspect. It's true that some condo setups have more of a hybrid feel, so if that works for you, great. Just remember that it's still a form of ownership that locks you into a unique situation.