Welcome to the 1st ever Smart Money Debate at ReadyForZero! To see the other side of this debate, read Michelle’s post: Why You Should Buy a Home Instead of Renting. And then let us know which argument was more convincing!

This post was written by Carrie Smith, the writer behind the Careful Cents personal finance blog, a site where she helps people get out of debt and find a career they love. She’s also an accountant and social media lover who enjoys traveling. Follow her on Twitter @applecsmith.

I understand the allure of buying a home. I myself bought a home (and later sold it). But I simply think that right now it makes far more sense to rent instead of buy. Owning a home may still be the great American dream, but with the recent economic problems and foreclosures all across the country, owning a home has become a nightmare for millions.

If you’re thinking of buying a home, I challenge you to take a hard look at the advantages of renting before you decide to buy.

Renting Means No Down Payment

Renters rarely have to put more than the first month’s rent down, as well as a security deposit (which, if all goes well, you may get back anyway). But, more often than not, a down payment on a house will be between 5-20% of the asking price. Depending on the current price of the home you’re looking to buy, this could mean tens of thousands of dollars.

In a perfect world, that down payment would become equity but, as I’ll explain below, that outcome doesn’t always happen. If you want to turn your down payment into an investment, there are many ways to do that besides buying a home. Plus, if you buy a home you’ll also need to have extra money set aside for any unexpected costs that come up during the process of moving in (such as repairs that were not identified prior to the sale of the house).

Renting Means Less Risk

Risk seems to be the most commonly overlooked factor when someone is considering buying a home. It’s something I ignored too when I purchased my first home at 23 years old. The risk that comes with homeownership is high for several reasons:

• If you’re married and base your mortgage payments on two incomes, you’re in lala land if you don’t factor in the possibility of losing one or both of your incomes.
• Homeowners face a good possibility of being foreclosed on, while renters face zero percent chance of foreclosure.
• You’re at the mercy of the housing market. As seen during the recent housing collapse, when you can’t pay cash for a home, you end up running the risk of owing the bank more money than the house is even worth.

Renting Means More Money in Your Pocket

Rent is often a fixed expense. Many people think that the monthly cost of owning a home is similar to the cost of renting, but often that’s not true. For one thing, the cost of renter’s insurance is significantly less than the cost of homeowner’s insurance. Unfortunately, many people don’t accurately calculate the true cost of purchasing real estate. Homeowners need to budget for expenses like property taxes, homeowner association (HOA) fees, repairs, and lawn maintenance just to name a few.

The true cost of owning a home can be surprising, especially for a single person or couple just starting out on their own. There are also the extra expenses that pop up which inexperienced homeowners are not familiar with. All of these extra costs are avoided when you choose to rent instead of buy – which means more money in your pocket.

Renting Means More Flexibility

What if you get a great job offer, get married or have a baby and need to move? If you’re currently renting, then you simply don’t renew your lease – or sublet the place until your lease is up. However, the process of selling a house (getting the house prepped, hiring a Realtor, etc) is much more involved, time consuming, and expensive.

For instance: what if you need to move before your house sells? Or you don’t find a buyer and your house sits on the market for several years? You will be paying both rent in your new location and your mortgage payments on your unsold house. Or perhaps worse, you’ll have to pass on opportunities that you are interested in because you lack the flexibility to take advantage of them.

Renting is Less of a Hassle Than Buying

Buying a home is an investment. It takes work and it’s expensive. You can’t just purchase a home and then forget about it. There’s always something that needs to be fixed or updated. And unless you have money to hire a staff of people to help, you’ll most likely be doing it yourself. If the yard needs to be mowed, you have to bust out the lawn mower. If you want to repaint a room, you’ll have to buy some paint and get busy.

Maintaining and personalizing your home can be very rewarding once you’ve finished, but you’ll find that it’s a job that’s hardly ever complete. You’ll constantly want to update things and make it more your style, which means putting in a lot of sweat equity.

Too many things can go wrong when you own a home, whereas renting can provide a more stress-free and carefree lifestyle, especially for a young adult or young couple. After experiencing too many costly and time consuming projects with my own house, I said goodbye to homeownership and hello to renting. And I haven’t regretted it once.

So… do you agree or disagree?

Image 2 by stockbroker
Image 3 by arthursh
Image 4 by yellowj

Update: We’re going to link to blog posts responding to this debate (if you post one, let us know). Today we saw this great one from Greg at Club Thrifty:

Club Thrifty: Buying a House vs. Renting: What’s the Right Call?

Tackling Our Debt: Owning or Renting? Why Renting Is The Right Choice For Us

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