A lifelong goal of many Americans is homeownership. Although rates of homeownership are currently high in the U.S., this hasn't always been the case. Historically, families either needed to build their own homes or rent a home from someone else.
While both renting and buying have their financial advantages, owning a home isn't right for everyone. In this article, we explore the reasons why renting might make more sense for your financial circumstances than owning a home.
- Both renting and buying have their financial advantages, and owning a home isn't right for everyone.
- One clear advantage that renters have over homeowners is that they have no maintenance costs or repair bills.
- One of the major benefits of renting versus owning is that renters don't have to pay property taxes.
- Renters might have to pay a security deposit equal to one month's rent, but when purchasing a home with a mortgage, you're required to have a sizable down payment—typically around 20% of the property's value.
No Maintenance Costs or Repair Bills
One clear advantage that renters have over homeowners is that they have no maintenance costs or repair bills. When you rent a property, your landlord is responsible for all maintenance, improvement, and repairs. If an appliance stops working or your roof starts to leak, you call the landlord (and hopefully it gets fixed).
Homeowners, on the other hand, are responsible for all home repairs, maintenance, and renovation costs. Depending on the nature of the repair, it can get quite costly.
Access to Amenities
Another financial benefit to renting, over buying a house of your own, 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 mid-scale to upscale apartment complexes with no additional charge to tenants. If a homeowner wanted to have access to these amenities, it would likely cost thousands of dollars for installation and maintenance.
Similarly, condo-owners need to pay monthly fees to pay for access to these amenities.
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—although in some areas, the costs can be thousands of dollars annually.
Although property tax calculations can be complex, they are determined based on the estimated property value of the house and the amount of land. With newly-built homes getting larger and larger, property taxes can be a significant financial burden.
No Down Payment
Another area where renters have a better financial deal is the upfront cost. Renters might have to pay a security deposit equal to one month's rent. However, when purchasing a home with a mortgage, you're required to have a sizable down payment—typically around 20% of the property's value.
Although the exact amount renters need to pay upfront varies from case to case, the total amount is significantly less than the down payment for a house. For example, with a 10% deposit on a house that has a market value of $200,000, the buyer would have to pay $20,000 before moving in. Likewise, with 20% down, a down payment in the amount of $40,000 would be needed.
For those who don't have the savings to come up with a down payment for buying a home, they might be better off renting.
More Flexibility for Where to Live
Renters can live virtually anywhere, while homeowners are restricted to areas they can afford to buy. A home in the city might be out of reach for most home buyers, but it might be doable for renters. Although rents can be high in areas where home values are also high, renters can more readily find an affordable monthly payment than homebuyers.
Decreasing Property Value
Property values go up and down, and while this may affect homeowners in a big way, it affects renters substantially less (if at all). The 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
By renting, citizens have the option to downgrade into a more affordable living space at the end of their lease. Flexibility to downsize is especially important for retirees who want a less costly, smaller alternative that matches their budget.
When you're a homeowner, 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 sell or move.
Fixed Rent Amount
Rent amounts are fixed for the span of the lease agreement (marking them as a production cost). While landlords can raise the rent with notice, you can budget more efficiently since you know the amount of rent you are required to pay. Meanwhile, mortgages that have adjustable rates can fluctuate while property taxes can be increased.
Mortgage lending discrimination is illegal. If you think you've been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. One such step is to file a report to the Consumer Financial Protection Bureau or with the U.S. Department of Housing and Urban Development (HUD).
Lower Insurance Costs
While homeowners need to maintain a homeowner's insurance policy, the equivalent for renters is a renter's insurance policy. Luckily for renters, renter's insurance is much cheaper, and it covers nearly everything owned, including furniture, computers, and valuables. The average cost of renter's insurance is usually $180 per year. Meanwhile, the average homeowner's insurance policy costs $1,211 per year.
Lower Utility Costs
Although homes can vary in size, they're typically larger than rental apartments. As a result, it's more costly to heat, and even electric bills can be higher. Rental properties typically have a more compact and efficient floor plan making them more affordable to heat and power than a home.
The Bottom Line
Owning a home might be beneficial for homeowners over the long run. However, for those who are looking to avoid the hassles of homeownership, the costs of upkeep, and the property taxes, renting might be a better option. Of course, it depends on each person's lifestyle, financial situation, and whether they're working or in retirement.