Paying rent: Am I really wasting my money?

living-room-renting

Throwing Money Out The Window

I don’t think there is a right or wrong answer when it comes to renting and wasting money or purchasing a home but there certainly are pros and cons to both.

Why do I choose to pay rent?

While the freedom of owning my own home sounds great getting there on my own may not be a reality but I am certainly going to try.

I am saving my money right now and enjoying it, though what I am saving for exactly is not set in stone. For the next 10 years I am choosing to continue to pay rent.

As a single mother I want to make sure I am fully prepared for all the costs and fees that come with being a homeowner if I do decide to make that choice down the road.

I have my mindset that in 10 years, if I am still single, I could be close to or have enough money saved for a reasonable down payment on a  house if desired.

While budgeting and saving money regularly and wherever I can I figure I could have a decent down payment saved through investments and other means in those 10 years.

I still get laughed at when I talk about using coupons with my grocery budget, even more when people see I have a coupon binder, but hey every dollar saved helps towards reaching my goal!

Could you afford a mortgage on one income?

Buying a house as a single individual with one income it is not impossible as Mr. CBB showed us while sharing his experience with “Buying a house, was I too young?” Though not impossible it can certainly be a challenge when only one income is involved.

I like the idea of owning my home and having my own space where I get the make all of the decisions. If I want to paint a room then I will paint it, instead of having to get permission from a landlord to do so and how I would love to have my own property to landscape, oh the things I could do!! Is it worth it though?

Importance of a down-payment

Without a sizeable mortgage down-payment, 25% usually of the value of the house, you incur more insurance fees as your debt:income ratio is now bigger making you a higher risk borrower.

Where I currently live, in today’s housing market $350,000 or even $300,000 would buy more than enough space for the kids and myself and still be a relatively newer home.

Saving up 25% of the home purchase price would make my down-payment anywhere from $75,000 to $87,500. Can I save that much in 10 years?

I believe it is possible and I am trying everyday to find new ways to save, though it is a challenge I have accepted it with full determination to make it a success.

Again, I do not desire a large, luxurious home. I honestly do not want to clean it and would rather see my money go into savings and time spent with my kids then into more housework. I do not make a ton of money so being smart with what I do make is key.

I don’t want to be able to make my mortgage payments, stretch my dollars to pay taxes and maintenance costs while having nothing in my house or unable to put food on the table so a sizeable down payment is important.

Getting in over your head

Owning a house in our society comes with the status quo of being successful. If you can handle a mortgage then you must be doing something right!

The town I grew up in and still live in has boomed in the last 10-15 years with multi-million dollar homes that are absolutely beautiful but seem to be put on the market quite often as people are finding they really can’t afford them.

A large, lavish home or mansion is not something I ever desire, even if I were to ever win the lottery, I don’t want to clean it, especially as a single mom with enough already to do, but I would be happy with something that will meet our needs space wise, yet comfortable.

More space equals more cleaning time and more space for junk and clutter to build. If you have read some of my past blog posts you will know that these are two things I have been working to reduce the amount of time in my life that I devote to them.

Keeping up with the Jones’ is definitely not a smart choice when it comes to purchasing your home. A house is a major investment so why would you want to take on more than you can handle just to keep up with your friends and jeopardize losing it all?

 A close friend of mine has made many comments about how their house is costing them more than they can really afford and how it is putting a strain on all other aspects of their life, this is not where I want to be, ever!

I guess when Mr.CBB says “It’s not about how much money you make it’s how you save it” really is important not only to spending on everyday items but big ticket items as well. If we keep buying on credit or spreading ourselves too thin financially it will put a strain on our lives and for me, it’s not worth it.

If I am going to own a home it will be within my means, but only if and when I am fully prepared. Our quality of life right now is not lacking anything because I do not own where we live.

Benefits of Renting

Many will argue that renting vs. buying your home, apartment or condo is like throwing away your money.

This argument stems from the fact that unlike owning a home where you build equity, there is no return paid on your monthly rent payment. While this is true a mortgage can also be a good way to throw some money away.

Typically, until the 5th year of a mortgage the majority of your monthly payment goes towards interest while hardly making a dent in the amount of principal paid down.

  • If you sign an all-inclusive lease then your single monthly rent cheque pays for everything, utilities, property taxes etc..instead of several separate bills and fees when you own a house or a condo.
  • A single, all-inclusive monthly payment is much easier to work into your budget than fees and bills that can vary from month to month.
  • Renting does not require you to come up with thousands of dollars for a down payment,  closing costs and fees for things such as building inspections, legal support, property  taxes and insurance. Though you are not building equity from your home you are saving these costs which can become money you can put into savings, therefore still giving you return on your investments.
  • When your lease is up you can move! Moving  to Western Canada is something I dream of and hope to make a reality someday. Moving out when a lease is up requires a lot less time in paperwork and avoids penalties and fees you may incur while trying to sell a house.

Buying a home is a major investment and can be a great investment if you are prepared for it. Choosing to rent and save money while making informed choices of where to save that money whether it’s in stocks and bonds or even just a Tax Free Savings account can be a great investment as well.

My goal right now is saving to be able to afford a down payment though that might be not what I actually end up doing with it.

If I choose to continue renting after 10 years then I have an x amount of dollars in savings that I can continue to put to work building our savings and investment portfolio.

Heck who knows maybe one day I’ll meet the man of my dreams and not have to buy a house on my own but even then we will have an awesome start at paying down a mortgage, two incomes and less interest to pay sounds great to me.

In the meantime I am happy paying rent and planning for the years ahead. A stable future for the kids and I is what I look forward to, whether it means investing in a house, paying for the kids schooling or re-investing it into the market, it will be money well saved and put to good use no matter what.

Do you rent and would you consider buying a house right now?

Katrina-CBB

Post Contribution: 

Katrina is regular contributor for Canadian Budget Binder and is as passionate about personal finance as she is gardening. Katrina is a horticulture graduate with over 10 years experience with landscaping and greenhouse production.

Her goal is to share her knowledge and experiences blogging about gardening and her continued passion for personal finance in hopes of motivating others. While being a single mom of two and an in-store marketing representative for major retail shops she also runs her own Landscaping Services in Southwestern Ontario.

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Katrina B

Author Bio: Katrina B

Katrina is a regular contributor for Canadian Budget Binder and is as passionate about personal finance as she is gardening. Katrina is a horticulture graduate with over 10 years experience with landscaping and greenhouse production. Her goal is to share her knowledge and experiences blogging about gardening and her continued passion for personal finance in hopes of motivating others. While being a single mom of two and an in-store merchandising representative for major retail shops she also runs her own Landscaping Services in Southwestern Ontario. If you would like to know more about her landscaping services simply email Mr.CBB at canadianbudgetbinder@yahoo.ca

Comments

  1. I rent because I live in LA and the cost of even a one-bedroom condo is so completely out of reach right now. I’m in good company though as a lot of my peers rent here too, so I don’t feel so alone. If I was in a cheaper living area I’d l look into a condo or town home, but only if the mortgage payment was less than..way less than the rent I’m paying now, which is a lot ore than most people’s mortgages.
    Budget and the Beach recently posted…Tiny ObstaclesMy Profile

    • Certainly sounds expensive to live in LA! You have to do what works best for you and renting sounds like the way to go.

  2. Katrina, I LOVE your approach and would like to rewind and take a similar one. We own our 1,400 sq ft townhome, but it has cost much more than the mortgage. We have had to replace appliances, two A/C units (think five figures! ugh!), and make several necessary repairs. We haven’t painted a room or replace anything just for cosmetic reasons because, as we have found out in the past six years by seriously questioning everything, we don’t want to be tied to any “thing.” We did fill our house with pictures and various baubles, many of which have now been donated or given away. If I could do it all over again, I would rent, pay off my student loans, and invest!

    Thank you for sharing your approach!

    • Your welcome Tammy :) I don’t want to be tied to a mortgage and all the other fun ‘things’, not yet at least. Thanks for stopping by!

    • You’re welcome Tammy :) I don’t want to be tied to a mortgage and all the other fun ‘things’, not yet at least. Thanks for stopping by!

  3. There is no doubt that in the long term, buying beats renting. But this is only true if you can afford to make the required payments (mortgage or rental). If you can’t make the payments, the consequences of owning a home can be much more brutal than renting!

    People always seem to strive to get onto the “property ladder” as its seen as the right thing to do, but they don’t always properly consider whether they are financially in the right position to do so.
    moneystepper recently posted…Tips to stop spending and save moreMy Profile

    • I agree, it is much easier to pick yourself up from missing a rent payment than defaulting on a mortgage for sure. I want to make sure I am prepared in every way so my hard work doesn’t end up going down the drain if I can’t afford it.

  4. I agree with you that renting and buying your own home has their pros and cons but for me, if you’re just starting out and you don’t have your own family yet, then I think the best thing for you to do is rent for now or you could just stay at your parent’s house for a while. That’s the cheapest alternative that i could think of if you really want to save up your money.
    Mark Ross recently posted…How To Enroll On EastWest Bank Philippines Online Banking ServicesMy Profile

    • My sister just did that, recently married too and they both moved in with my parents to save to buy their first home, Mom and Dad are getting some free labour and help around the house and property so it’s a win-win for everyone!

  5. Christine Weadick says:

    Another awesome article Katrina!! My Dad owned a rental house for a number of years and only had the one family living there. They were from out east and moved here for his job. They owned a house out there that her Mom lived in and they planned to move back east when he retired. They simply didn’t want the hassle of selling a house once he retired so they rented fromDad for a good number of years. Dad was happy as they were really good tenents and he sold the house after they moved back east.
    If renting works for your situation then that is what you do. There are as many reasons to rent as there are to buy. I love your plan to work towards buying a house of your own on your own. How the plan works out over the years doesn’t really matter as much, I think, as the plan itself, Good for you!!!

    • Thanks for your support as always Christine. Sounds like that situation worked out to benefit everyone, it is definitely easier to pick up and move when you rent.

  6. Great article but I feel that you’ve missed a crucial point: Sometimes, just the property tax, condo fees, utility payments etc. can be more than a rent payment. If you can rent a space for $700 but are paying $800 in tax etc. (not even including the mortgage and interest cost from THAT), you’re effectively throwing money away just the same

    • That’s a good point, where you choose to rent is important too. Having everything included in one payment is the way to go and easier to budget for.

  7. EL @ MoneyWatch101 says:

    I am also renting and it is not too bad for my area. IF I were to buya home, my housing expenses would go up about 10-15% due to taxes and higher maintenance costs. Buying a house is in my 5 year life goals.
    EL @ MoneyWatch101 recently posted…Home Buying with Down Payment AssistanceMy Profile

  8. The monthly payment that includes your principal, interest, taxes and insurance is the key. No matter what variation of inputs (PITI) you need to be able to cover the payment and still make ends meet with all other discretionaries that go with a house. What I did not come across is the interest paid on mortgages is still tax deductible and its huge. I had the same issues about affordability, but when I factored in the interest deduction on taxes., the choice was simple. As funny as it may sound the biggest misstep I have heard from new home owners is that they need not meet the neighbors. It can turn out to be a disaster.
    Chad | The Stock Market and I recently posted…Why QE is Important to YouMy Profile

    • That made me laugh, good point! If you are going to be there for a while you might want to know who else is going to be around. Thanks for sharing the tip about the mortage interest.

  9. I rent currently and don’t consider it wasting money. I might not be putting money towards equity but I don’t have to any maintenance issues or property taxes either. Anything that breaks goes on the land lords dime. In addition, if I have any issues with bugs, those expenses get billed to the land lord. I figure that is well worth the expense of rent while I save up money and pay off my student loans.
    Micro recently posted…GTA V and delayed gratificationMy Profile

  10. Romona@Monasez says:

    I agree with you about renting. Over time it’s way more cheaper to rent/. You don’t have to worry about maintenance, HOA fees or nothing like that. It still is my desire to buy a house but I don’t think I will until I get married. I just can’t imagine having to take care of a house on my own quite yet. This is a great read.
    Romona@Monasez recently posted…National Lampoon’s Vacation: Financial Lessons We Can Learn from Clark Griswold Part 1My Profile

  11. My husband and I have owned our home for seven years and we both agree we hate it. For us home ownership is more hassle than its worth. Between payments, repairs and upkeep it’s just not worth it. We’re looking forward to selling it and going back to the days where we can enjoy life more and not feel so tied down. We can make the payment fine and we bought the house new so it wasn’t a bad investment..just a bad lifestyle choice. Really sort your priorities before you sign, you might find you like having a nicer apartment more than you would a house and all that comes with it.

    • That’s interesting to hear that you don’t like being home owners. It’s the first time I’ve heard but I’m sure there are many others out there that feel tied down. I can understand.

  12. We have two condos and live in one of them. At one point, we were renting out our single condo and renting an apartment to live in. In some cases, I have found that I can RENT a nicer place in Vancouver than what I can buy. That being said, it depends on the downpayment, the location, and all those other things. Currently, the condo I live in is above and beyond what I could rent in the area. We still manage to save almost 50% of our take home pay, so it’s worth it for us!
    CF recently posted…Top 10 Side Jobs – #9: Special Events Customer ServiceMy Profile

  13. Excellent look at the renting vs buying debate… we rent right now because we don’t know where we want to settle down yet, so it just makes sense not to buy if we have to sell in a couple years!

    The important thing though, I think, is to really understand why you are making the decision you are. A lot of my friends and co-workers look at buying a house because they are “tired of throwing their money away,” but they don’t really understand the economics on renting vs buying (and don’t have a proper down payment), but just seem to buy because that’s what expected of them.
    Jon @ Increase Credit Limit recently posted…Why is credit score important?My Profile

  14. Hi Katrina,

    Thank you very much for sharing this great post. Indeed, Owning a house in our society comes with the status quo of being successful. If you can handle a mortgage then you must be doing something right. I actually prefer on buying and owning a house.

    -Abby

  15. I have rented for the past 10 years and will continue to do so because it gives me more freedom at this point and time. I have zero debt and keep my expenses low which allows me to invest the majority of the money I make in the market or other business ventures/life experiences. I believe in long, slow, value investing, and I don’t want to maintain a house. It’s not for everyone I agree, but I am one person who has decided not buy.
    CanadaLoanSearch recently posted…Major Principle of Budgeting: Simple Ways to Successful Money ManagementMy Profile

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