A lifelong goal many citizens strive to achieve is homeownership. While many people in North America own their own homes today, this wasn't always 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 own sets of financial advantages, renting does appear to have an edge when the economy is poor. There are tremendous financial benefits to renting as opposed to buying a house of your own. Here is a look at ten reasons why renters can have the better financial deal than homeowners.
No Maintenance Costs or Repair Bills
A definite advantage renters have over homeowners is that they have no maintenance costs or repair bills to pay off. When you rent a property, your landlord is responsible for all maintenance and repair costs. If an appliance stops working or your roof starts to leak, you do not have any financial responsibility to have these things fixed. Homeowners, on the other hand, are responsible for all of their own repair, maintenance and renovation costs. Depending on what the repair is, these costs can be quite extensive.
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 wants to match these amenities, he or she can expect to pay thousands of dollars in installation and maintenance costs. Similarly, condo-owners need to pay monthly fees to pay for access to these amenities.
No Real Estate Taxes
An obvious benefit that renters have over homeowners is that they do not have to pay real estate taxes. Real estate taxes can be a hefty burden for homeowners and vary by county. Although property tax calculations can be complex, they are determined based on the estimated property value of your house. With houses getting larger and larger, property taxes can be a significant financial burden. (For more, see: How Property Taxes are Calculated.)
No Big Down Payment
Another area where renters have the better financial deal is upon signing. When purchasing a house with a mortgage, you're required to have a sizable down payment, ideally 20%.
However, you do not have to have a huge down payment saved up to move into a rental property. While the exact amount you need to move in varies from case to case, the total amount is significantly less than you would need to buy a house.
According to a graph released by the New York Times, many landlords require a rental deposit equal to the amount of one month's rent while a down payment for a house is much higher. For example, with a 5% deposit on a house that has a market value of $175,000 your move-in costs start at $8,750, which is much more than the average one-month rent rate. Also, those buying will want to save up much more than 5% for their initial down payment because the bigger the down payment, the better. In short, bigger down payments can save you thousands of dollars in interest.
Evolving Market Creating More Renters
Although the U.S. Housing market has mostly recovered, some communities have not been so lucky as tighter lending practices, higher prices, and all-cash buyers create a market that's not so buyer friendly. (For more on this, see: Financial Crisis + 10: Where Are Home Prices Now?) By renting, citizens are avoiding potentially owing a mortgage that they cannot afford.
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. Home value determines the amount of property taxes you pay, the amount of your mortgage and more. In a rocky housing market, renters are not as adversely affected.
Flexibility to Downsize
In today's economy, many people struggle to make ends meet. By renting, citizens have the option to downgrade into a more affordable living space at the end of their lease. When you are a homeowner, it is much more difficult to break free of an expensive house because of the fees involved with buying and selling a home.
Fixed Rent Amount
Rent amounts are fixed for the span of the lease agreement. 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 and the amount of the property tax can fluctuate.
Lower Insurance Costs
While homeowners need to maintain a homeowner's insurance policy, renters would be wise to invest in a renter's insurance policy. Luckily for renters, renter's insurance is much cheaper, and it covers quite a lot. The average cost of renter's insurance is just $12 per month, according to the Independent Insurance Agents and Brokers of America. Meanwhile, the average homeowner's insurance policy cost ranges between $25 to $80 per month.
Lower Utility Costs
With homes getting larger and larger, it is often much more affordable to heat and power an apartment or small rental home as opposed to a larger home. Rental properties typically have a more compact floor plan, and renters can expect lower utility costs.
The Bottom Line
While owning a home may be beneficial for citizens over a long period, for many people renting is the better option. There are plenty of examples that show how renting can save consumers a considerable amount of money. The choice of whether to rent or buy your own home is a personal one. Before making a hasty move, review the details and make the financial decision that is right for you and your family.