Is renting a home right for you?
A growing number of Americans are finding it makes more sense to rent a home than buy it. Is it the right choice for you?
Keith Lane/Special to The Christian Science Monitor
Brian Hollar of Arlington, Va., has never owned a home. That's one big reason, he says, why he's been able to travel extensively, go back to school after more than a decade of work, and not worry about retirement.
For years, Mr. Hollar poured 20 percent of his pretax earnings into his 401(k) because he wasn't burdened by interest payments, property taxes, or maintenance bills. He dared to switch jobs several times to pursue higher pay at little-known, unestablished firms because he had no housing commitment to tie him down. Now his 401(k) is in the six figures, and he's comfortably taking years off to pursue a PhD.
"Renting can be just as financially sound of a decision as owning a home, and in many cases, it's more financially sound," he says.
Hollar belongs to a growing demographic group: renters. Pressed by layoffs and imploding mortgages, home-ownership rates have been dropping steadily since peaking at 69.4 percent in 2004. Today, with ownership rates at 67.2 percent and sliding, the number of tenant families has grown by 3.6 million and represents nearly a third of households.
As renting gets more common, renters and financial advisers are exploring how it can help grow wealth. The key, they say, is to make good use of its flexibility.
One advantage is, in many cases, lower housing costs. New York City money coach Farnoosh Torabi reminds her young adult clients who rent that they're spending hundreds less per month than if their current dwellings were their own. She urges them to save the difference every month. "You're testing your ability to own a home," Ms. Torabi says, "and you're building wealth at the same time, which is good whether you end up buying a home or not."
Saving $3,000 a month in New York
Jack Hough of Queens, N.Y., follows a similar philosophy. An investing columnist for SmartMoney Magazine, Mr. Hough has never owned a home. He pays $2,150 to rent a condominium with parking, granite countertops, and new appliances in a neighborhood 20 minutes from his Manhattan office. Though he could afford to buy a home for his family of three, he'd need to spend an extra $3,000 a month in order to own a comparable home, he says. Instead, Hough steers that money into mutual funds, bond funds, and other securities.
"I'm getting ahead financially by renting," he says. "Being able to afford [a home] and having a good payoff, those are two different things."