Owning a home has become one of the rites of adult passage in modern life. It‘s right up there with graduating from university, getting married, landing your first job and having children. But while the proper time to own your own home will come, there are times when it is better to rent than to own a home.
A time of transition
There are times when your life is in such a state of flux that the last thing you need is a permanent residence. One example is graduating from school. Many of people think that buying a home is the next step after graduating and landing your first job. But they may be jumping the gun on this one.
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Another example is a person coming out of a divorce. If you own a house when you are married, it might be natural to want to own a new one when you’re divorced. But divorce is another one of those transitional times when the possibilities are endless. You could meet and marry someone who lives in another province, or you could decide that you really want to do mission work in the tropics. In either case, the house that you bought right after your divorce could end up being a strategic mistake.
A time of financial struggle
Owning a home is the perfect situation when you are prosperous and settled in life. But the loss of a job, the failure of a business, or the sudden arrival of a large unexpected expense (lawsuit, paying for the care of an elderly parent, or helping an adult child in crisis) could make homeownership an unsustainable burden.
Many times in fact, a financial crisis requires that you make substantial changes in your lifestyle. The house that you could once easily afford, suddenly becomes an albatross. The house will be a complication if you have to transition into a lower paying job, move to another city to find employment, or start a business because there are no jobs available in your field.
Renting will be the perfect situation, since it will provide the flexibility that you need to deal with the struggle at hand. At a minimum, it’s generally quicker and easier to move from one rental to a less expensive one, than it would be to sell your home and move to less expensive quarters.
Starting a new business
Starting a new business often means living on a shoestring. Most businesses start with no income at all, and that can be a problem if you have a mortgage to pay. Sometimes it could be better to start a business before buying a house, that way you build up the cash flow that will be needed in order to maintain a home. Other times, it could be an advantage to sell your home to raise capital to launch the business. In either situation, renting could be a better option.
When you’re first married
Often, the first thing newly married couples do is set out to find a house to buy. It seems to be a natural progression to go from marriage, to a home, to children. But reality doesn’t always support that flow so neatly.
Given that 40% of first marriages end in divorce, it’s probably better that buying a house shortly after getting married isn’t a priority. This isn’t wishing- or preparing-for divorce, but acknowledging the reality of the times.
It may be better to spend a few years getting to know each other and solidifying the marriage before buying a home. A jointly owned home is a major complication in the event of a divorce. The property must often be sold as part of a settlement, and if this happens shortly after purchase, a substantial amount of money may be lost in the process.
When you first move to a new city
People often purchase a new home upon moving to a new city. But if the job is unexpectedly lost, or a promotion in an different city comes about within a year or two, the transition will be made more difficult if you own a home. And if there is no relocation package to cover the transaction costs on the sale of the home, the cost to do so might make the promotion difficult to accept.
No matter how optimistic you may be upon accepting a job in a distant city, you might be best to rent for a year or two before buying. Not only will that give you an opportunity to get settled in the new location, but it will also give you a better handle on the market and where the best neighborhoods and deals can be found.
In general, owning your own home is worth the effort. But there times in life when it’s best to travel light, and to be prepared for whatever life has in store for you.
Have there ever been times in your life when you wished that you had rented instead of owning your home?
I rented right after the Northridge earthquake because we were thinking about downsizing. I rented out my house for three years and we tried out a townhouse. We wanted to test it out before we bought. It was a good thing we did too because we bought a larger townhouse.
Definitely better to rent rather than own when you have yet to save up a big emergency fund. Truth is, financial hardship can come at any time. You don’t want to be caught unprepared while also dealing with all of the house costs.