Here’s why it could be an expensive choice, even if buying isn’t your plan

Flak flying around says renting is like throwing money down the drain, but Ramsey has a different opinion. Ramsey, well-known for his tough approach to money management, believes that while renting offers flexibility, it doesn’t offer the financial security that owning does.

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He says a home is a basic expense, and renting can be a smart move if you have other debt you’re trying to pay off or anticipate moving in a few years for work purposes. It’s all about flexibility. But Ramsey’s biggest rule of thumb for buying a home is to have stability in your finances first. “You’re ready to buy a home when you’re debt-free, your emergency fund is fully funded and you have enough cash for a down payment,” he says.

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Ramsey recently discussed the rent vs. buy debate in a YouTube video. He responded to a listener who loved their rental in a bustling city with all the amenities, but was worried that buying a home she could afford would force her to move far away. While Ramsey acknowledged that renting might be the best option for her, he pointed out that renting long-term could be financially damaging.

“Renting gives you flexibility, and sometimes that makes perfect sense,” Ramsey said. “But over time, those rent payments add up and you’re left with nothing to show for it.” He added: “Rental rates are rising almost annually, making long-term renting less viable.”

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Ramsey’s concerns are well founded. From 2019 to 2023, rents increased by more than 30% on average in the US. He pointed out that even if the pace is slowing, rents are still rising and are not sustainable in the long term, especially with retirement in sight.

Retirement is a game changer for renters. “Housing is the most expensive line item in your budget,” Ramsey pointed out. Rising rents can wreak havoc on the finances of retirees on fixed incomes. Homeowners enjoy constant costs; if they own outright, they can incur zero housing expenses. “It’s better to have an asset that can increase in value than a rental expense that keeps increasing,” Ramsey advised.

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The statistics back it up: According to the Federal Reserve, the median net worth of U.S. homeowners in 2022 was $396,200, compared to $10,400 for renters. That’s quite a gap. Home ownership appears to foster financial stability that is unaffected by factors such as inflation. “That’s almost 40 times more wealth,” Ramsey pointed out, arguing why the goal of owning a home can be central to one’s finances.

Those with a fixed rate mortgage have fixed monthly payments, while tenants are at the mercy of their landlords to increase their rent over time, quite often higher than the rate of inflation. However, owning a home is daunting for many. More than half of US renters looking to buy feel out of reach. Ramsey advises starting small, saving and tackling debt. “Work on paying off any outstanding debt, like credit card balances and student loans,” he suggested, and “create a budget that works.”

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According to Ramsey, renting might be OK for now, but buying pays off in the long run. Weigh your options, analyze your finances and think long term. “Making a wise choice about where you live is one of the best ways to take control of your finances!” Ramsey urges.

As traditional rental investments become less and less affordable, alternative options such as fractional real estate are growing in popularity. This model allows investors to buy property by purchasing shares, allowing them to earn passive income without the burden of full ownership. Diversifying portfolios through fractional ownership can reduce risks and capitalize on the potential of the real estate market.

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This article Dave Ramsey Warns Against Long-Term Leasing: Here’s Why It Could Be an Expensive Choice Even If Buying Isn’t Your Plan originally appeared on Benzinga.com

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