Is Renting a Waste of Money?

With many areas experiencing rising rental costs, many people wonder if they should focus on owning homes rather than renting them. Is renting a waste of money? Not necessarily, but the answer is highly personalized and not as straightforward as many people might think. 

Why Do Some People Consider Renting a Waste of Money?

The main reason why some people view renting as wasteful is it does not allow building equity. Equity is the difference between a home’s value and the amount owed on a mortgage. Equity is a share, and owners can tap into various benefits as it grows.

Building equity with a home makes it easier for people to qualify for specific loan types. Equity also increases the likelihood of individuals being able to sell their houses for higher prices. However, renters can’t build equity. Instead, they’re building wealth for the landlords who own and rent the homes. However, people cannot immediately determine that renting is a waste of money for every tenant. Many things can affect whether that’s the case. 

Perception of the Location

When people think about the renting vs. owning debate, they often consider how much they like particular locations. If they could picture themselves living there for several years and having good experiences overall, owning could make more sense than renting. 

Many people rent in particular locations first. Then, they set home ownership goals after realizing they thoroughly enjoy living in those places and want to put down roots there. If individuals can’t find enough things they appreciate about their locations and can hardly wait to find other places to live, it doesn’t make sense to aim for owning a home there. 

Willingness to Handle Home Maintenance

People should also think about how prepared they are to keep homes in good condition by handling repairs and budgeting for appliances that break. Many renters appreciate the peace of mind that comes from knowing they’ll never have to deal with a leaky roof, a malfunctioning refrigerator or a situation where a neighbor’s kid breaks the window while playing baseball. 

Those are all things generally covered by the landlord or property manager. However, since leases can specify otherwise, it’s important to always read everything carefully before signing. 

People should also think of how readily they could financially handle planned-for and unexpected home expenses. 

Studies suggest homeowners could spend thousands of dollars in each category per year. One frequently suggested tip is to set aside 1% to 3% of the home’s purchase price. The lower percentage covers maintenance and repairs, and the higher one includes upgrades. 

Financial Stability

Research from 2023 showed homeowners have higher credit scores and more retirement savings than people who rent. The study concluded that people who own their homes have better financial stability than renters.

Even if that’s true, prospective homeowners still have to have some level of financial stability before buying property, especially if applying for mortgages. Potential lenders want to see an applicant’s income relative to their expenditures and that they have a steady income and a reasonable credit score. 

However, many people find house prices climbing faster than their earnings. Is renting a waste of money if people focus on it to help them save for home ownership goals? No. It’s a way to achieve the necessary financial stability to buy homes that’ll eventually make them even more financially well off. 

Employment Situation

People should also consider things related to their jobs before deciding if renting or buying is a better option. For example, if a person’s employer has frequently spoken to them about a possible transfer to another state or country, renting would probably not be a waste of money for them. 

Similarly, if a person’s employer has been laying off workers at an above-average rate lately, that may be a sign it’s not the best time to take the plunge into homeownership. Employees should also take a future-oriented approach to their considerations. For example, how likely is it that the company will still exist — and be in the same location — five to 10 years from now?

How frequently does the company give promotions to deserving employees? That could make a difference since 46% of homeowners worry about paying their mortgages. People who make more money or are more frugal with their earnings may be less likely to have such concerns.

Current Feelings About a Rented Property

Is renting a waste of money for people doing it now? The answer primarily depends on how they feel about the overall situation. Maybe someone’s landlord frequently enters the property without notice or permission, leading to privacy issues. On the other hand, perhaps the landlord largely takes a hands-off approach, never bothering the tenant but remaining responsive to issues. 

Many people also love the layouts, locations and amenities of their rented properties. Some think about how they could imagine living there forever and consider the rented properties their “dream homes.” 

Perhaps the rented property came with luxury furniture and top-of-the-line appliances that would take the tenant months or years to buy. Is renting a waste of money in those cases? Probably not. 

Consider, too, that many people know renting won’t build equity for them. However, they still appreciate how they’ll pay a fixed price per month to live in the property and won’t have to worry about the possibility of declining values. 

Life Goals

People should also think about how well renting fits into their life aspirations — or doesn’t. Someone could be in a fulfilling situation where they rent a property with their closest friend, and neither party is interested in owning a home. In such a situation, renting is not a waste of money because it suits both people involved. 

It’s also fairly common for unmarried couples to buy homes together. However, in the United States, things can get complicated if they break up. That’s because there are usually no governing laws dictating who gets the house in such cases. Conversely, divorce laws make the outcomes clearer. If both parties are committed to the relationship and feel it’s stable, that may give them the justification to buy instead of rent. 

Is Renting a Waste of Money? The Answer Varies

This overview shows why there’s no quick or universal answer about whether renting is a waste of someone’s money. People must consider how prepared they are to take on the known and unexpected costs of homeownership and whether they’ll likely stay in a particular location long enough to make homeownership sensible. 

Many people like how renting provides them with more flexibility over their living arrangements and relieves them of the responsibility to maintain the home and budget for repairs. They’ve weighed its pros and cons and decided it’s not a waste. 

A person’s overall decision depends on numerous personal factors, things related to their goals and the significant people in their life. Renting doesn’t build equity, but some people find it suits them better.