4 Reasons to Rent, Not Buy

Recently I moved into an apartment after owning a house for seven years. Afterwards, a huge sense of relief came over me. I no longer have to mow a lawn, do repairs on the house or worry about asset depreciation.

When I decided to move out, I did a spreadsheet analyzing my return on investment in owning a house. While owning a house makes sense for some people, it doesn’t for me. I don’t enjoy working on a house, nor do I need the extra space a house affords me. By owning a house, I incur an opportunity cost for the other things I want to do in my life, such as starting new businesses and deepening my friendships.

To aid others in my situation, my four reasons to rent, not buy are:

  1. More Free Time
    Time spent repairing, remodeling and maintaining my house (or managing others to do it) can now be directed toward increasing my income, relaxing and spending time with friends.

    Not owning a house means I don’t earn equity paying for my residence. But the extra free time allows me to grow the equity in my business at a far greater rate than any mortgage payment would.

  2. Less Stress
    Stress from owning a house comes in many forms: worries about the housing market, handling unexpected repairs and maintaining all the stuff you accumulate.

    I didn’t realize the psychological overhead of owning things until I moved out. Things take up space, need to be cleaned, organized and fixed. Owning a place allowed me to accumulate stuff I never would when renting (like a sensory deprivation tank). Renting forces me to simplify. The lack of permanence changed my perspective–allowing me to focus on what I truly need.

  3. More Mobility
    Lack of mobility becomes a tax on your budget and career. With a house, it’s harder to pick up and move to a new city, or even a different part of the same city. Without mobility, you may be forced to take a lesser job, or pay higher gas and commute costs when you take a job farther away. With an apartment, I’m more mobile, allowing me to expand my universe of opportunities.
  4. Fewer Costs
    Maintenance, repairs and remodeling costs add up. Rental managers estimate about 1% of the home value goes toward these annually. Then you have the cost of storing and maintaining all the tools and equipment you buy for those maintenance, repair and remodeling jobs.

    With renting, maintenance becomes someone else’s problem, handled with a simple phone call. And the limitations on remodeling have freed me from the time spent planning and improving the house. If I want a better place, I find one and move to it.

That all said, many excellent reasons exist to buy a house. And I may buy one again in the future. But as an entrepreneur who wants to put my energy toward the things that matter to me, home ownership is a distraction. Financially and personally, I am better off renting right now.

What do you think? Would you rather rent or buy?

Credits: The photo used in this article was taken by Steve Damron.

2 comments

  1. Phil says:

    I’m an entrepreneur / engineer – entrepreneur in my free time, the engineering job allows me to have the capital for the entrepreneur in me.

    I rent and have always, never saw the benefit of handing over my money to a bank that charges me for the pleasure of taking on a massive financial debt where if something goes wrong, the bank wins both ways. They get the house or a lifetime of my money. Plus, love the fact that my free time is mine and I don’t spend weekends fixing the house.

    Came across the following post the other day and it puts into words a lot of what I have thought about houses and financial sense.
    http://techcrunch.com/2012/03/24/entrepreneurs-should-not-buy-homes/

    1. trevor says:

      My newest lesson in life: all advice is context-sensitive. The question is not whether to buy or rent, but under what conditions you do which.

      Unfortunately, the Tech Crunch article makes sweeping generalizations that don’t often apply. In general, property taxes don’t go up faster than rent. On average, renting is always going to be cost more than buying, because any landlord who consistently loses money doesn’t stay a landlord for long.

      It’s clear the author has an axe to grind. He doesn’t want to buy and has created justifications for why he shouldn’t. He then extrapolates these as truisms, ignoring the problems with renting: rents rise, landlords don’t always fix things, leases don’t always get renewed.

      He makes some valid points. To me, the biggest argument against buying a house is the time overhead. Time spent working on a house can be applied to a business instead. And the return there is huge.

      One mitigation strategy is to buy a house that requires little work and/or hire a property management company to manage your own house. For entrepreneurs, the tradeoff of time for money is often worth it. The goal isn’t to pay less, it’s to have more time to create more leverage in your business.

      I fully support you renting. But I challenge you to change your mindset toward banks and risk in general.

      Banks aren’t taking “a lifetime of your money”. They are providing you a service for a fee: namely giving you access to their money. If you want to build a business, you need to understand what the cost of capital is, and whether the benefit you receive from having access to that capital outweighs the cost. It’s unhelpful to have the view that debt as always a bad thing. Banks often have a lower cost of capital than most other forms of capital you’ll encounter.

      Regarding risk, if something goes wrong, you should pay. That’s what makes it a risk. If things go right, you win; if things go wrong, you lose. If you don’t lose when things go wrong, it’s not a risk. And the bank doesn’t actually “win” if you default. They often have to write-off a loss and then deal with getting rid of an illiquid asset.

      You are free to hold whatever views you want toward banks and owning houses. But as you build your business, consider the views of the people and businesses you are working with. That will give you insight into how to make win-win partnerships with your customers, vendors and even your banker.

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