Depending on your life situation, financial status, and tolerance level, renting a house might be the best option for you. Here are some factors to consider when renting a home.
Advantages Of Renting:
- You’re free from the hassle of maintenance problems. The landlord is responsible for all maintenance including appliances and miscellaneous repairs. No muss, no fuss.
- Rental payments might be less than mortgage payments. You won’t have to worry about paying property taxes and other incidental costs of owning a house. Changes in the price of housing won’t affect you as much thus lowering your risk in the event of another housing decline.
- You can easily move. When you own a home, you might need to sell it before you can afford to move. When you’re renting you can just pick up and go giving your life increased flexibility. You aren’t tied down by a mortgage.
Disadvantages Of Renting:
- Some landlords will not allow you to make minor alterations without consulting them first. This could include hanging pictures, and other fixtures that would leave holes in the walls. This make it hard to ever truly feel at “home”.
- Some landlords don’t pay much attention to concerns regarding repairs and maintenance. It might be difficult to get your landlord to take action quickly, if at all, when something goes wrong.
- Rentals aren’t investments. Rent payments never build equity – but they can for your landlord. This means you are on an endless treadmill of eternal rent payments as long as you choose not to own.
Let’s switch gears for a moment and take a look at the advantages and disadvantages of buying a house.
Advantages And Disadvantages Of Buying A House
Home ownership is not for everyone, but there are some financial and emotional advantages to consider . . . .
Advantages Of Buying A House:
- The house will be all yours once you pay off the mortgage. Also, the odds greatly favor that you will earn some capital gains if you remain in the house long-term. Neither of these will occur as long as you rent.
- You’ll have the option to rent the house out should to decide to move. Rental earnings can be used to pay the mortgage.
- You can pay off your home and stop making monthly payments. Once the mortgage is paid then your housing costs will fall dramatically thus lowering your risk long-term while increasing your equity.
- You have the freedom to remodel and improve your home whenever you want.No landlords to stop your creative expression!
Disadvantages of Buying A House:
- It’s a long-term financial commitment. It’s expensive to buy and sell real estate thus only making financial sense if you have a long-term perspective.
- It can be stressful to maintain a house. It takes time and money to complete repairs and maintenance. Some people don’t want to be bothered.
- There’s no guarantee that the value of your house will increase. There’s a chance that you may even incur losses if you’re forced to sell it due to relocation or financial constraints.
- You’ll need to shell out a lot of money for the down payment, broker fees, and closing costs. The Rent vs. Buy Calculator will take these costs into account and show you which is the best deal.
It’s important to notice how this Rent vs. Buy Calculator asks you the length of time you’ll stay in the house.
This is a critically important input that dramatically impacts your decision because the costs of owning a home change over time. Don’t make the mistake of looking at monthly payments alone. It’s important to consider future expenses and changing housing needs.
Traditional wisdom advised to buy because “homes are an investment.” But remember, these investments can go down in value as evidenced by the 2008-2009 housing collapse in the United States. Nothing is certain.
This is why it’s crucial to take a bird’s-eye view of your situation. Why are you moving? What costs are involved? Is this temporary or long-term? How much can you afford? How much do utilities cost? Will you have a longer or shorter commute to work?
The Rent vs. Buy Calculator will make the financial portion of this decision easy by weighing all the costs into a complete analysis. When coupled with your personal needs as discussed above, it will help you make a smart decision you can live with.
Rent Vs. Buy Terms & Definitions
- Rent – A tenant’s regular payment to a landlord for the use of property or land.
- Buy – Purchase in exchange for payment.
- Mortgage – The charging of real property by a debtor to a creditor as security for a debt, on the condition that it shall be returned on payment of the debt within a certain period.
- Commission Rate – The amount of money, expressed as a percentage, that merchants pay their affiliates (in this case, real estate agents) per sale. You can also pay as a buyer of a home.
- Association Dues – An amount of money that must be paid monthly by owners of certain types of residential property to an organization that assists with maintaining and improving that property.
- Appreciation Rate – The rate at which your property increases (or decreases) in value over time.
- Discount Points – A type of prepaid interest mortgage borrowers can purchase that lowers the amount of interest they will have to pay on subsequent payments.
- Insurance – A practice or arrangement by which a company or government agency provides a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a premium.
- Inflation Rate – The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.
- Down payment – An initial payment made when something is bought on credit – like a mortgage.
- Mortgage Term – The duration of the mortgage loan.
- Annual Interest Rate – The annual rate that is charged for borrowing, expressed as a single percentage number that represents the actual yearly cost of funds over the term of a loan.
- Origination Fee – A fee charged by a lender on entering into a loan agreement to cover the cost of processing the loan.
- Property Tax – A levy on property that the owner is required to pay.
- Federal Income Tax – A tax levied by the United States Internal Revenue Service (IRS) on the annual earnings of individuals, corporations, trusts and other legal entities.
- Capital Gain/Loss – The increase or decrease in the value of the property.