Why We Rent – The Changing Nature of the American Dream

buy vs rentThe American worker of today relocates often and craves flexibility. The idea of working one job for one company for the rest of their careers is anathema to them; they will change careers several times and likely live in several different geographical locations as they mature. That desire for flexibility doesn’t line up very well with a 30-year mortgage on a non-liquid asset that you’re required to live in. In fact, the rate of home ownership has slipped to just 65% in the first quarter of 2013, the lowest ratio since 1995.

Mortgage payments are also generally higher than rents are, due to the long-term nature of buying property. When a person pays a mortgage, they’re actually paying two different sets of fees- the interest on the mortgage, and the principal. It’s true that mortgage interest is tax deductible, but only if you forgo the standard deduction on your taxes, so the tax break is not that great, you are only getting back a small fraction of the interest payment.

Renting Rules

Rental insurance, even for full-cost replacement value of your items, is substantially cheaper than homeowner’s insurance.

If an appliance breaks, if the trees need trimming, if you have a slab leak- as a homeowner, you’re responsible for those costs. As a renter, in several areas, you just call the landlord or property manager! It’s important not to downplay how important this is- if the HOA says the trees need topping, or the dishwasher breaks, or a pinhole leak in the slab is detected those expense can easily run into several hundred or in the case of a more severe problem, several thousand dollars. As a renter, you also do not have to pay any HOA fees.

Of course, the downside to this is that you aren’t building equity in a home when you rent. However, what if the home loses value, or you become “under water” or “upside down” on your home- all of that equity can go up in smoke at the whim of the market, leaving that plan you had for retirement in the dust. In addition, recently many homeowners have seen the equity they built in their homes disappear as the market fluctuates.

Renting allows people to live in a nice neighborhood with good amenities and services where they have good access to employment and education, without having to share walls with neighbors or give up their privacy to stay liquid and flexible. That flexibility to choose is the new American dream- and it’s also a great investment option for single-family real estate.

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