Updated: Feb 4
This is part 3 of a 3 part series on the cash impact of buying vs renting. In this portion we focus on considerations for renting.
I initially approached this final part of the series by working out specific numerical scenarios where renting could be more fiscally advantageous than buying since we often speak about the home buying experience as imperative for the financially responsible. However, it felt like the specifics in my examples began to get too far into the weeds and to distract from the main point(s), and so I decided to take a more general approach to the topic.
Ultimately, my advice is this: if you are trying to decide whether you should rent or buy, you have to do the math--there really is no substitute. Sorry folks.
If you aren’t a numbers person, try to make it fun; pick out some fun snacks & drinks, get a whiteboard or a big piece of paper, play your favorite music, and get to work. Here are a few factors to consider:
1. What is included in the rent? There may be amenities that replace what you would have otherwise spent money on, such as gym membership (if there is a community gym), utilities, and maintenance costs.
2. How much disposable (left over) income will you have? If you are saving enough on costs as mentioned above, this could generate funds that you would then have available to invest.
3. If you will have disposable income, use an investment calculator online to judge the results of investing those funds on a monthly, bi annual, or annual basis.
4. When renting, will the time savings of not having to perform repairs & maintenance be such that you will be able to take on a side-gig, further your education, or work overtime?
5. Are there indirect cost savings, such as being able to live closer to town (hypothetically where you work), which would save on commuting costs?
Once you have answered these questions, total the savings and compare it with your potential home buying scenario. The results should speak for themselves! No two scenarios are alike so you have to do the math every time. It does get easier so don't give up!
How about you, which scenario has worked better in your life, renting or owning?