It’s Okay To Rent Forever: Hitting Your Financial Goals While Renting (2024)

FAQs

Does renting make financial sense? ›

There are also some financial or tax benefits to renting compared to buying a home. If you decide to rent over owning a property, then you are not required to pay (1) maintenance costs or repair costs, (2) no real estate taxes, (3) no down payment for the purchase of the property, and (4) no purchasing costs.

That's not true. In fact, the top-selling financial author of all-time, Robert Kiyosaki, says, “A home is a liability, not an asset.” An asset puts money into your pocket every month. A home takes money out of your pocket every month. Some say, “Paying rent is like throwing money away.” That's not true either.

Generally, experts recommend spending no more than 30% of monthly pre-tax income on housing. However, it's not always that simple. According to the U.S. Census Bureau, between 2017 and 2021, over 40% of renter households (19 million) spent more than 30% of their income on rent.

As purchasing a home has become more expensive than ever before, many Americans are now considering themselves forever renters with no plans to enter the housing market.

However, for those who want to avoid the hassles associated with homeownership, the costs of upkeep, and property taxes, renting might be a better option. Of course, it depends on an individual's lifestyle, financial situation, what they can afford to pay in monthly rent, and whether they're working or in retirement.

A landlord can report any missed payment to a credit bureau, which will land on your credit report. That missed rental payment will act as a negative mark on your payment history and as payment history is one of the most important factors in calculating your credit score, your score will likely go down.

If you're paying off debt or expect to move for a job, it's smarter to rent because renting gives you more flexibility. You may have heard the myth that renting is a waste of money. That's not true. Housing is an essential expense.

Many wealthy individuals would rather save money by renting and put their dollars to work somewhere else. Instead of tying up your money in an illiquid asset like a home, one could invest it in the stock market, which often performs better.

This perception that renting is a waste of money likely stems from the fact that the rent you pay does not help you to acquire ownership in a house. Unlike when you make a mortgage payment, you aren't building equity or getting closer to owning a valuable asset free and clear.

Take rent for example. The traditional advice is simple: Spend no more than 30% of your before-tax income on housing costs. That means if you bring in $5,000 per month before taxes, your rent shouldn't exceed $1,500.

Is $2000 rent too much? ›

To find your maximum rent using this rule, divide your household's annual gross by 40. For example, a household that earns $80,000 per year can afford a maximum monthly rent of $2,000 (80,000 ÷ 40 = 2,000). The 40x rule has a few flaws.

As a rule of thumb, your monthly rent shouldn't exceed 30% of your gross monthly income. This leaves 70% of your gross monthly income to cover other expenses. For example, if you make $50,000 per year and follow the “30% rule,” you'd have $15,000 annually - up to $1,250 per month - to spend on rent.

Several factors contribute to this trend. Many renters are being priced out of homeownership as the National Association of Realtors reported that the median sale price for existing homes soared to $407,600 in April 2024, a 5.7% increase from the previous year and a record high for the month of April.

Sure, some can't afford to buy, but others are choosing the “Renter-by-Choice” lifestyle. Apartment List survey data reveals that almost 25% of millennials plan to "always rent." And an Opendoor survey shows nearly half aren't sure if they'll ever be homeowners.

No matter how you feel about it, it's happening. The rental market is growing, and we are becoming a nation of renters. And we're early into this long-term trend. Ultimately, there is a huge demand for apartments, which will only increase.

Rental properties can be a great way to generate income, so long as your operating expenses aren't too high and your rent price is competitive. Rent payments, security deposits, move-in fees, and pet fees can also help cover your monthly expenses and leave money left over to save for future costs.

When you rent, you purchase convenience and choice. You can build wealth while you rent by directing some of your available cash flow to savings, retirement accounts, brokerage accounts, or even other investments like education or a business startup.

Economic Contribution- Landlords that invest in properties often contribute to the local economy. After all, property ownership and management create jobs in maintenance, repairs, and property management services. Additionally, they pay property taxes, supporting local government services and development.

Yes, you can use rental income to qualify for a mortgage, including potential rental income if you have held the property for less than a year. There are two different types of rental income considered by lenders during the mortgage qualification process.