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The following is a post by MPFJ staff writer, Kevin Mercadante, who is professional personal finance blogger, and the owner of his own personal finance blog, OutOfYourRut.com. He has backgrounds in both accounting and the mortgage industry.
Owning a home is right there with baseball and mom’s apple pie as an American virtue. It’s seen as the centerpiece of middle-class life and as the foundation of financial success. But, there are times when renting is better than owning a home.
What are some of those times?
Establishing yourself early in life
There’s often an emphasis on buying a house as early in life as possible. It’s similar to the imperative to begin funding your retirement plan, in that you begin paying down your mortgage so that it is fully paid off well before your retirement. In the meantime, the house should rise in value over time, providing you with a substantial asset in addition to shelter.
There’s no doubt that that line of reasoning makes abundant sense. However, when you’re in your 20s and life holds so many variables, owning a house can be more of an albatross than an advantage. If you meet and marry someone from out of town, or you need to relocate to follow a job, the house could be a problem you don’t need.
When you’re young and trying to establish yourself in life, it’s often best to do it with as little baggage as possible. A house is a big piece of baggage, and can get in the way of important plans.
During financial hardship
Though we often think of a home as a safe harbor, it can be quite the opposite during a financial hardship.
For one thing, when you’re going through financial hardship, you’ll need cash. It’s not at all easy to get cash out of the house anymore. Cash from home equity lines are harder to get than they used to be. But, if you’re having financial troubles, you won’t be able to qualify anyway.
You could also consider selling the house, but that presents its own set of problems. For one thing, there’s no way to know how long it will take to sell the house. For another, personal financial troubles often coincide with national economic problems. Selling a house in that environment isn’t always possible.
Cash flow is another problem. Financial troubles usually require that you lower your living expenses. Largest of these typically is the house payment. If you rent, you can always find a cheaper place to live. If you own however, that won’t be so easy to do. In addition, as an owner, you will have repair and maintenance costs that will soak up more precious capital.
Being a homeowner isn’t always the best state of affairs when you’re facing a financial crisis.
When you have a career that involved frequent job changes
Some people are in career fields that require frequent job changes. The typical situation may be a person who is on the management fast-track, and has to move frequently in order to follow promotions within the organization. Owning a home usually doesn’t help a person in the situation.
Every time you have to move to make a job change, you’re faced with the choice of either selling your home or renting it out. The current housing market makes it very difficult to buy and sell a house every three or four years and to do it without losing money.
If instead you decide to rent out your home, after 10 or 15 years you’ll have a portfolio of rental properties that are all over the country. Not only will that be very difficult to manage from an investment standpoint, but it might conflict your primary occupation.
When you‘re making a big push for retirement or starting a new business
This one is not true in all cases. Sometimes owning a home can be a significant part of both retirement planning or an effort to start a new business. In other times…it can sort of get in the way.
How can that happen?
Let’s say you’re starting a new business, and you need every dollar you have to cover either start up costs for your venture, or living expenses for the first few months. Your house would represent a fixed expense plus the variable costs of repair and maintenance. That would compete with your efforts start a business on a shoestring.
The same could be true with retirement. If you are looking to load up on your retirement savings, especially if you are a little bit late in doing so, the cost of owning your home will compete with your efforts. It will be difficult to put extra money into your retirement plan when you need to replace the roof, the air conditioner, or the carpeting in your house.
There is no way to know for certain if owning a home would or would not be a problem in any of the above situations. But at the same time, it’s not necessarily true that owning a home is the right course for everyone. Consider the choice to own or to rent based on your own personal circumstances, keeping in mind that owning may not necessarily be the right thing for you.
How about you all? Do you think renting or buying makes more sense?
Do you think your opinion of renting vs buying changes as the housing market conditions fluctuate?
Share your experiences by commenting below!
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