As “rent-first” lifestyle becomes more popular, find out when it makes sense to buy vs. rent!
Are you looking into your expenses and wondering if you should buy vs. rent something? Well, many Americans are increasingly opting to rent rather than buy items such as cars, apartments, clothing, and furniture, according to a report by Intuit Credit Karma. The trend extends beyond traditional rental items like tuxedos and now includes power tools, musical instruments, designer handbags, and baby gear.
The survey found that 28% of adults regularly rent goods and services, and when housing is included, that figure rises to 47%. This shift toward renting is mainly due to rising costs, although some individuals already prefer a “rent-first” lifestyle for the flexibility it offers. The survey, conducted in June with over 2,000 adults, also highlighted that 58%, find value in renting as it helps them avoid overconsumption – a concern particularly relevant for millennials and Gen Z adults -, besides offering flexibility.
Clothing and Cars
Carolyn McClanahan, a certified financial planner and founder of Life Planning Partners Jacksonville – Florida, suggested that renting can be a smart choice, but it’s important to evaluate the costs. For instance, renting clothes for special events can be practical, but if you attend many such events, owning a few versatile pieces may be more cost-effective, she noted.
The cost of clothing has risen significantly, with men’s and women’s apparel prices increasing by 15% and 13.3%, respectively, since July 2020, according to the U.S. Bureau of Labor Statistics’ consumer price index.
On the other hand, McClanahan advised against leasing cars, as it often results in higher costs over time. Although lease payments are usually lower than car loan payments, financing a car purchase is typically less expensive in the long run, especially for those who keep their vehicles for several years. Additionally, car buyers gain full ownership and equity in the vehicle once the loan is paid off. On the other hand, leases often come with maintenance included but have mileage limits and potential extra charges for wear and tear.
Should You Buy or Rent a Home in Today’s Market?
Given that housing is one of the most significant expenses for most people, renting might be the better option, at least initially. McClanahan suggested renting unless you are confident you will stay in a home for at least five years.
“Only when you are settled with life, jobs and family is when it probably makes sense to buy a home”, she added.
Higher mortgage rates and a limited supply of homes have driven prices up, creating a challenging market for potential buyers. According to a Bankrate report, nearly three-fourths of homebuyers point out affordability as their biggest barrier. Among younger adults, 50% believe that only the wealthy can afford to own a home, according to the Credit Karma report.
While homeownership has been a significant source of wealth creation, it’s not always the best financial decision. Michael Krowe, director of financial planning at Edelman Financial Engines, advised against buying a home solely for investment purposes.
“Don’t make a home purchase simply because you think it’s going to surge in value. You might think your home is an investment – it’s not. Your home is a place to live”, he said.
Krowe recommended buying a home if you appreciate the community, schools, and proximity to friends and family. However, there can be advantages to renting, especially if it prevents financial strain, he concluded.