5 reasons that renters are smarter than homeowners

young couple buying or renting...Shutterstock
By Kathryn Tuggle

Owning a home is a big responsibility and investment -- one not everyone can or should take on. And renters are often told they're "throwing money away" -- but are they really? Here's a look at five reasons that renters actually may be a step ahead of buyers.

1. You Get More Perks and Fewer Worries

"The last time I checked, most homes don't come with a gym, a swimming pool, a clubhouse, a roof deck and a guy who comes to pick up your laundry once a week," says Paul Purcell, managing director of real estate firm William Raveis in New York City. "Rental properties are getting nicer and nicer, and they offer the kind of perks that you just don't get when you buy a home."

"I don't have to clean the pool or water the flowers, and if I want to go on vacation, I just lock the door behind me," Purcell says. "There's a sense of freedom that comes with renting, while homeownership comes with a tremendous amount of responsibility."

2. Houses Are Illiquid Assets, with No Guaranteed Profit

While it's likely you'll make money from homeownership, you can't predict market volatility, says Gabby Warshawer, director of research and communications at CityRealty in New York City.

"People who bought condos in Manhattan in 2007 and then sold them in 2014 realized an annual growth rate of 3.4 percent, which is way off the 10-year average of 7.9 percent, which shows how you really can't predict these things," she says. "In 2006 and 2007, there was a feverish, 'buy, buy, buy' mentality, but the people who bought are now realizing the lowest rate of return in a decade."

Homes aren't an investment you can ever be certain about -- there's always an element of gambling, Warshawer says. Although time generally "heals all wounds" in terms of market volatility, if you don't have 20 years to wait around, renting is often the safer option.

3. You Can Be as Mobile and Flexible as Life Dictates

If there's one thing we know about millennials, it's that they value flexibility, Purcell says. "Younger people value happiness in their jobs more than they value job security, so they're not afraid to pick up and move. They say, 'Sure, I live in New York, but I just got a great job offer in San Fran. I'm moving!' They're portable."

If you own, it can take several months -- sometimes years -- to sell a home. "Millennials know this. They say, 'Why do I want to tie myself to an expensive investment that prevents me from taking advantage of the opportunities that come my way?' "

People who plan to buy a home should be committed to an area for at least three to five years to break even on their investment, Purcell says. To make a profit, you need to be committed to an area for at least 10 years, and that can seem like an eternity for a mobile generation.

4. Closing Costs? Two Mortgages? That's Throwing Money Away

Renters aren't throwing money away every month, but buyers might be, Purcell says. "You can throw more money away if you buy a home that's a [bigger] mistake than you ever could on renting," he says. "When you get ready to sell, if you have not recouped the money you put into the house and then you have closing costs, brokers fees, it can cost you tens of thousands of dollars."

Also, homeowners who need to move unexpectedly may find themselves faced with paying two mortgages or a mortgage and rent. "If you own a home, you can't say, 'I'm going to sell my house tomorrow," but if you rent, you may have the option of going on a month-to-month lease and leaving whenever you like. Imagine if you said to the bank, "I only want to pay my mortgage for one more month.' They would laugh at you," he says.

5. You Have a Ready-Made Sense of Community

Many apartment complexes provide instant community and neighborhood connections, Purcell says. From community bulletin boards to weekly yoga classes or once-a-month potluck dinners, today's apartment buildings offer much more than just a roof over your head.

"As soon as you step out of your door you're going to see someone you know and have someone to chat with while you walk the dog. That doesn't happen in Greenwich, Connecticut," he says. "On the weekends, instead of mowing your lawn and coming back inside your house, you can hang out at the pool with friends. It's a no-brainer."
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