The Pros and Cons of Renting

General

Jun 21

Is renting superior to buying?

In my 12+ years of being in the residential real estate industry, I've had many people come to me and argue that renting a home is superior to buying a home.

I've had others say owning a home was the best decision they've ever made.

So, which one is it?

Well, let’s start with the pros and cons of renting your home.

The Pros of Renting Your Home

Renting gives you more flexibility.

One of the big benefits of renting is the flexibility and freedom it gives you to move around.

The home buying and selling process can be hard, expensive, and time-consuming. If you're not ready to settle down in one location or uncertain about your long-term plans, renting might be a good way to go. Renting can allow you to test out a lot of different neighborhoods or cities without the commitment or cost of a mortgage. It can also allow you to move with less hassle if you have frequent job transfers or if you are a remote worker looking to spend time in many different areas throughout the year.

You don’t have the responsibilities that come with homeownership.

Another perk of renting is the reduced responsibility.

When something breaks or needs repair, you can simply call your landlord or property manager, and they'll take care of it. No need to stress over unexpected expenses or the hassle of finding reliable contractors. This can protect you from wild variations in your budget because the home is one less item where a large unexpected expense could pop up.

You don’t need a large chunk of money upfront.

Renting also frees up your cash in the short term.

Not only are you protected from large expenses popping up, but when you move into a rental property, you don't have to worry about spending a large amount of money as a down payment. Renting typically requires a smaller upfront cost, such as a security deposit, rather than tens of thousands of dollars in down payment and closing costs.

The money that you would have spent on a down payment is now free to go toward other things such as travel, other investments, or emergency savings. I know a couple who continues to rent the house they live in because whenever they save a large chunk of money, they use it to buy rental properties in other parts of the country. When they acquire enough rental properties, they will eventually retire using the income generated from those properties.

You can live in a neighborhood you may not be able to afford to buy in.

Renting can also allow you to live in a neighborhood that you might not otherwise be able to afford to buy in.

For example, in Pacific Beach, the average price point to purchase a home in May of 2023 was $1.5 million. That's a pretty steep price point. However, there are several more affordable rental properties in the area, including large apartment complexes, smaller rental cottages, accessory dwelling units, etc.

These rental properties allow a large swath of young people to enjoy living and experiencing an upscale beach lifestyle that they aren’t able to afford to buy at this stage of their lives.

The Cons of Renting Your Home

Now let's switch gears and explore some of the downsides to renting. While renting does have several advantages as discussed above, there are some disadvantages as well.

Renting won’t help you build wealth like buying would.

First and foremost, when renting a property, you do not get to participate in the equity gains.

As the property value increases, you simply get the same use of the property you always had. Should the owner decide to sell, it's very rare (okay, let's be real, almost never) that the landlord is going to allow you to get a portion of the money from the sale. So while you, the tenant, have been effectively paying the landlord's mortgage, you get none of the benefit derived from paying said mortgage all those years.

Why is this important? Well, the net worth of homeowners is almost 40 times that of renters.

If growing your wealth is part of your overall personal financial plan, owning the home you live in is a fantastic way to increase your net worth by doing something you are doing anyway: living in a home. Andrew Carnegie said that "90% of all millionaires become so through owning real estate." So if wealth creation is interesting to you, owning a home might be too!

You run the risk of your rent increasing.

Another downside of renting is that many renters are subject to ever-increasing rents.

Imagine this: you spend all year showing up to work, working hard, putting in your hours, getting noticed by the boss, and you get a raise! Yes! Fantastic, right? Well, yes, until you get a notice from your landlord telling you that rent is going up (AGAIN!). Most landlords are in the business of making money. If market forces allow them to raise rents, they're likely going to do it. Thus, as your income grows, your landlord gets to share in your increased income! How nice of you to share with your landlord. But are they sharing the money they make with you when they go to sell the property? The answer is almost always "NO".

Your personalization options are limited.

Another downside to renting is that you're limited in what you can do to personalize the space.

Most landlords/leases require the landlord to grant you permission before you can paint walls, change flooring, or remodel the kitchen. Besides, let's be real, even if the landlord allows you to remodel the kitchen, would you really want to spend your hard-earned money on improving someone else's home? What if your family is growing, and you want to add an additional bedroom or bathroom? It's going to be more likely that you'll have to move rather than personalize.

With renting, your living situation isn’t entirely up to you.

Another downside to renting is that your living situation in any given year is at the whim of another person.

At any moment, subject to the terms of the lease, the landlord can decide that they want to move back into the property or sell the property to someone else who wants to move in. This can be really problematic if the landlord moves back in at a time that is inconvenient.

I had a friend who had been living in a house for 16 years, and their children were sophomores and seniors in high school when the landlord gave them notice to vacate because they were coming back to San Diego. When the tenants looked around for a new place to live, they realized the rents in the neighborhood had gone up significantly, and they wouldn't be able to afford to live there unless they downsized significantly. So, the options became to work a second job to cover increased rent, move out of the neighborhood and put the kids in a new school district at the 11th hour of their high school career, or live as a family of 4 with 2 dogs in a cramped apartment. These are NOT decisions I would want to face at the whim of someone else.

Should you rent or buy?

Most people think that because I am in the real estate business, I'm in the camp that says "You should ALWAYS buy a home."

Not necessarily.

I think there are plenty of times in one's life when it makes sense to rent. If you're a military family and you're only going to be stationed here for less than three years, renting is a good option. If your personal finances are such that you can't afford a purchase, another good reason to rent. If you like flexibility due to your remote work, another good reason to rent. If you are so good at investing your money in things that make you more money than owning a home, and you don't care about personalizing your home or being at the whim of the landlord, then by all means, rent! Heck, if Grandma Carol is letting you live in her mansion rent-free, and you can do whatever you want for as long as you want, then definitely keep that gravy train rolling! There are a lot of logical reasons to rent a home instead of buy.

But in the long run, most people find that homeownership is much more beneficial for their lives, both personally and financially. Not everyone, just most people.

That’s it for me today, friends! See you in my next one.

Brent Edwards (aka Brent the Broker) is a residential real estate agent and Realtor in San Diego, CA who helps clients buy and sell homes in San Diego, California and all surrounding areas. Brent is a highly-recommended Realtor in San Diego by family, friends and past clients. Call Brent today at 619-550-8070 if you have any questions about real estate in San Diego or you'd like to buy or sell a home.