“Hey Dad, is renting a bad idea?”

Not at all, kids:

However, some people would say that renting is throwing money away. Now, that may be true in some instances, but not in all. For me, it has been a great decision. I have owned over 10 houses in my lifetime. Some old, some new and the one thing that has been consistent about all of them is they all required some amount of updating, repair and/or maintenance. That can be both, time consuming and expensive.

As a general rule, they say you should expect your annual home maintenance expense to amount to 1% to 4% of your homes value. This means that if your home is worth $300,000, you might spend anywhere from $3,000 to $12,000 per year on upkeep. “Has anybody found a nice house, in a desirable neighborhood for $300,000 lately?” (Me neither). You also need to consider increases in property taxes, homeowners’ insurance, HOA fees, and any home services that you have contracted, like lawn service, trash collection, pool cleaning, dog poop pick up service (yeah, that’s a real thing) and potential special assessments.

When I was transferred to another state for work, I identified where I wanted to live, based on some things that “I” considered important:

·        Proximity to my job, to limit time in traffic

·        Area that has great schools, known as safe, well maintained, and considered desirable 

·        Proximity to retail outlets, grocery stores, restaurants, gas stations, movie theaters, gyms, parks

·        Area that offers lots of social events and activities for all ages, like farmers markets and festivals

This was my idea of “Utopia”, and as you can probably imagine, this was not going to be cheap.

(Definition: Utopia is an imaginary community that possesses highly desirable or near-perfect qualities)

So tell me, “when did the average price of a Townhouse go over $1 million?” Who are they fooling? The sign reads, “High $900’s”, but we all know that means $1 million +. That’s absolutely ridiculous! “I know, I was looking for Utopia. I found it! I just can’t afford it”.

Let’s look at the numbers:

We also need to consider home maintenance expense, so let’s use 2% of the purchase price ($20,000) as the estimated annual maintenance expense and divide that number by 12 months ($1,667/month). Then, add the total monthly payment to the monthly maintenance expense:

$8,433 + $1,667 = $10,100 Estimated Monthly Housing Expense

I should probably consider my other living expenses too, like utilities, food, clothing, transportation, etc. I was asked, “why not just put 20% down ($200,000) to lower your monthly payment? The simple answer is, “I don’t have $200,000!” Looks like I’m priced out of Utopia.

If I just have to live in “Utopia”, another option could be to rent. Researching the local rental market, prices start around $3,000/month. That’s not cheap either, but it’s a lot cheaper than $10,100/month.

This is when renting really makes sense. You have identified the perfect location. The area addresses all of the things that are important to you. And while you would love to own a home here, financially it just doesn’t make sense for your budget, right now.

From a budget perspective, if you rent, your fixed expenses should stay relatively stable, which will allow you to save for a larger down payment on a purchase in the area, in the future. You will get to fully experience the area, to see if “Utopia” is indeed the right place for you. If it’s not, you can pack up your stuff and move.

Also, when you are renting, if something breaks, the landlord is responsible for fixing it, not you. That broken dishwasher? “Not your problem”. That leaky toilet? “Not your problem”. That frozen pipe? “Not your problem”. You’ve got no maintenance expense to budget for and no repairs to consider. Just come home, sit down, and relax.

Make sure that you have very good Renters Insurance, because if that pipe does freeze, and bursts, damaging your personal property, you not only want to be compensated for the damages, you want to be covered for temporary housing too, while repairs are being made.

This strategy of renting gives you an extreme amount of flexibility. If interest rates fall and/or house prices come down, you will potentially be in a better financial position to take advantage of the market.

Are there some drawbacks to renting?  “Absolutely!”.  One of the bigger drawbacks is the potential for annual rent increases.  Additionally, understand that you will not be building any equity or receiving any real estate tax breaks while renting.  Still not sure whether you should rent or buy? Try using a Rent vs. Buy Calculator.

In my opinion, if you’re only going to be renting for a couple of years, the benefits of renting, in this scenario, outweigh the drawbacks.  Get in there and take advantage of everything the area has to offer.

“Welcome to Utopia!”