When Renting Is Awesome and Owning a House Is Overstated

homeowner

Renting is a dirty word to many Coloradans. Many people firmly believe in the American Dream of home ownership and consider paying rent as a way of throwing money away while making a landlord rich.

While there is nothing wrong about buying a house, the financial benefits of it are often overrated. It is true that rental properties in Centennial do not increase the wealth of tenants through home equity like bought houses. But the argument of believers for home ownership ends there.

Historical data shows that properties hardly outpace inflation. Nobel Prize winner and economist Robert Shiller argues that the housing market has not generated sufficient capital gains between 1890 and 1990. Home prices throughout this period have had an inflation-adjusted annual return of 0.3%. On the other hand, the stock market has had 6.5%.

If you are overly conscious about your finances, understand that a house can be an investment, albeit not a great one. You need your property to appreciate a lot consistently over the years to retire mostly on the proceeds of its sale down the road.

But many factors influence house appreciation and depreciation, and only a few of those you can control.

Renting an apartment or a house might not be for all, but most people can benefit from it. Below are some of the reasons to sign an agreement with a landlord before making a deal with a mortgage lender:

Building Your Name

Think of renting as an investment to establish a track record in financial management.

A fresh graduate has to start at the bottom of the corporate ladder to gain working experience and have better future employment opportunities. A renter is no different.

Like owning credit cards, renting a property for at least one year allows you to showcase your ability to handle a financial obligation. Showing a lender canceled checks for 12 months or other proof of rental payment like Verification of Rent increases your chances of mortgage approval.

No sane lender will loan you hundreds of thousands of dollars blindly nor believe that you are a sound borrower just because you said so.

Saving Money

girl saving money

Yes, rental payment does not increase your wealth through home equity, but you may get to keep more net income if you put off a property purchase.

When the rent you have to pay is less than your supposed monthly mortgage payment on a comparable property, you can save the difference to beef up your rainy day fund or invest the money. Homeowners also have to contend with a host of other recurring expenses, including tax and maintenance.

Enjoying Flexibility

Rental leases generally last just a year long. You can opt to enter a new agreement with your landlord or move elsewhere without significant financial implications. The ease of mobility and the lack of pressure to commit to a single property for many years makes renting empowering.

Being house poor is never pleasant, but to rent is always better than to buy a house when you are not ready. While you should consider becoming a homeowner at some point, you should not quit renting for the wrong reasons.

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