Owning a home may be a lifelong goal for many Americans but that doesn’t mean it’s for everyone. Renting is a good option. Homeownership rates are currently high in the U.S., but this hasn’t always been the case. Families have historically needed to either build their own homes or rent a home from someone else. Although it may not be ideal, renting has advantages, too. For some people renting might make more sense for their financial circumstances. Our team at Corken + Company wants to make sure that you have all the necessary information to help make wise decisions for your future.
No Maintenance Costs or Repair Bills
One of the benefits of renting a home is that there are little to no maintenance costs or repair bills. This means that when you rent a property, your landlord assumes full responsibility for all maintenance, improvement, and repairs.
On the other hand, homeowners are responsible for all home repair, maintenance, and renovation costs. Depending on the nature of the task (and whether multiple jobs pop up at the same time), it can get quite pricey.
Access to Amenities
Another financial benefit of renting is having access to amenities that would otherwise be an enormous expense. Luxuries such as an in-ground pool or a fitness center come standard at many midscale to upscale apartment complexes with no additional charge to tenants.
If a homeowner wanted to have access to these amenities, they would likely have to spend thousands of dollars for installation and maintenance. Condo owners aren’t exempt from these costs either. These expenses roll into their homeowners’ association (HOA) fees, which are due on a monthly basis.
No Real Estate Taxes
One of the major benefits of renting versus owning is that renters don’t have to pay property taxes. Real estate taxes can be a hefty burden for homeowners and vary by county. In some areas, the costs associated with property taxes can amount to thousands of dollars each year.
Although property tax calculations can be complex, they are determined based on the estimated property value of the house and the amount of land on which it’s built. With new constructions getting larger and larger, property taxes can be a significant financial burden to homeowners.
No Down Payment
Another area where renters have a better financial deal is the up-front cost. Renters generally have to pay a security deposit that is equal to one month’s rent. And that’s usually all. This deposit is theoretically returned to them when they move out, provided they haven’t damaged the rental property.
When purchasing a home with a mortgage, you’re required to have a sizable down payment—typically around 20% of the property’s value. Of course, that down payment results in having equity in the home, which only increases as the mortgage is gradually paid off. And once you own a home free and clear, you have a valuable investment that renters never attain.
Still, the amount needed for a down payment on a home is significantly more than a rental security deposit. A 20% down payment on a house with a market value of $200,000 is $40,000. The average apartment rental in Manhattan, one of the most expensive places to live in the U.S., was $4,419 in February 2022. Those who don’t have money for a down payment are better off renting.
More Flexibility As to Where to Live
Renters can live practically anywhere, while homeowners are restricted to areas where they can afford to buy. Living in an expensive city such as New York may be out of reach for most home buyers, but it is entirely possible for renters. Although rents can be high in areas where home values are also high, renters are more apt to find an affordable monthly payment than home buyers.
Few Concerns About Decreasing Property Value
Property values go up and down. While this may affect homeowners in a big way, it affects renters substantially less, if at all. Your home value can impact the amount of property taxes you pay and the amount of your mortgage. In a rocky housing market, renters may not be as adversely affected as homeowners.
Flexibility to Downsize
Renters have the option to downsize to more affordable living spaces at the end of their lease. This kind of flexibility is especially important for retirees who want a less costly, smaller alternative that matches their budget.
It’s much more difficult to break free of an expensive house because of the fees involved with buying and selling a home. Also, if a homeowner has invested a significant amount of money in renovations, the selling price might not cover these costs, leaving them unable to afford to sell and move.
Fixed Rent Amount
The amount you pay for rent is fixed for the span of the lease agreement. While landlords can raise the rent with notice, you can budget more efficiently, because you know the amount of rent you are required to pay.
The same applies to homeowners with fixed-rate mortgages, which also allow for efficient budgeting. But adjustable-rate mortgages (ARMs) can fluctuate, often resulting in rising mortgage payments due to higher interest charges. Property taxes are another variable that can increase costs for homeowners but don’t affect renters.
Lower Insurance Costs
While homeowners need to maintain a homeowners insurance policy, the equivalent for renters is a renter’s insurance policy. This kind of policy is much cheaper and covers nearly everything owned, including furniture, computers, and valuables. The average cost of renter’s insurance is $179 per year, while the average insurance policy for a homeowner costs $1,249 per year, according to a study by the Insurance Information Institute.
Lower Utility Costs
Although homes can vary in size, they are typically larger than rental apartments. As a result, they are more costly to heat and also can have higher electric bills. Rental properties typically have a more compact and efficient floor plan, making them more affordable to heat and power than many houses.
Owning a home can be beneficial for homeowners over the long run, due to the amount of equity they acquire in their home. Renters have nothing tangible to show for years of rental payments. 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, and whether they’re working or in retirement.
Learn more about the benefits of renting at: investopedia.com
