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Michelle Singletary: Renting, reconsidered

For as long as I can remember, homeownership has been a home run on the American Dream scorecard.

When I graduated from college, my grandmother gave me two choices – live with her or buy a home. In her mind, to rent meant I was a failure financially.

“When you rent, you get nothing for your money,” Big Mama would lecture.

Since I didn’t have enough money saved for a home, I lived with my grandmother, who had been my guardian since I was 4. I hated that year of ridiculous rules. No shoes under the bed. Don’t turn the television nob to the left, only to the right (this was before remote controls). And Big Mama fretted I would be late for work, so she would wake me at 6 a.m. for a shift that didn’t start until 10 a.m.

After a year of this, I decided I had to move. But I still didn’t have enough money saved to buy a home. So I rented.

Every time I called my grandmother, she would berate me about renting. By the end of my lease, I had saved enough to buy a condo, thanks to a first-time homebuying program. I’ve never rented since.

I tell you this story for two reasons. I understand where my grandmother was coming from. Owning a home was the only way she knew of creating wealth for herself and our family. She didn’t trust investing in the stock market. I joke that the only bond she ever owned was the adhesive for her dentures.

A just-released study by HelloWallet, a company that provides online financial help as an employer-provided benefit, puts the debate of homebuying versus renting in perspective. If the cost of renting is less than that of owning a home and you save well, you can accumulate just as much wealth as homeowners do, the study contends.

So, the question HelloWallet set out to answer was this: Could renters build more net wealth than homebuyers, while taking on much less risk, by forgoing homeownership and investing the yearly savings from renting in a tax-deferred retirement plan?

They could indeed, the study concluded.

“Over half of current homeowners, or over 40 million households, purchased their homes during time periods when average homebuyers would have been better off renting and investing,” Szapiro noted.

Of course, the key is that renters need to have the discipline to invest the savings they get from renting.

HelloWallet listed a number of findings in its study, but two stood out for me:

• Be careful about the bias built into “buy-or-rent” calculators. Many of the free online tools that are supposed to help determine if buying a home is right for you are heavily biased toward homeownership, the report points out. The calculators often compare homeownership to saving in an interest-bearing bank account earning low returns.

“Since homes are a risky asset, an alternative investment should also present some risk, such as an investment in a mix of stocks and bonds aimed at building long-term wealth for retirement,” Szapiro says.

• Don’t overestimate the tax advantage of homeownership. An overwhelming majority of homebuyers – 80 percent – listed the federal mortgage deduction and other tax benefits as a reason to buy rather than to rent. Yet more than half of homeowners with mortgages don’t even take the deduction because they don’t itemize their federal tax returns. “Federal tax benefits for homeownership go largely to high-income families in high-cost areas, and even for these families, the benefit is fleeting,” Szapiro says.