Renting vs. Owning

  • Latoya Clark
  • 10/1/21

Renting Vs. Owning

It's all fun and games until you enter the real estate market by yourself. You will find many people giving advice on owning or renting a house. However, they fail to understand that the market dynamics are different at different times. They do not understand that the circumstances are different, and it's not like one glove fits all. No, that is totally wrong!

While the general opinion is that OWNING is always better than RENTING - however, several factors come to play in this scenario. 

Let's talk about it in detail and see when it is better to rent and when it is better to own based on your tailored situation.

This question is mostly asked by first-time homebuyers, but no problem; we are in this together. So, let's begin by understanding what these two terms actually mean in the real estate industry.

Renting

Renting, sometimes known as hiring or letting, is a contract in which one party pays for the temporary use of someone else's property. A gross lease is one in which the tenant pays a set monthly rent, and the landlord covers all of the property's normal expenses.

Why Do People Rent?

If you aren't planning on living in the area for more than five years, renting is a better option than owning. This is referred to as "the five-year rule."

The fixed expenses of buying are paid off after five years, at which time you may start building equity, and a rising home market in the area where you bought further accelerates the process.

If you have a 700+ credit score and reside in a slow region where people are not banging on the city walls asking to be let in (as they do in areas like San Francisco), rent and first mortgage payments will almost always be similar. These payments will be pretty consistent if you have a fixed-rate mortgage.

Furthermore, your mortgage interest is still tax-deductible as long as you do not have a significant amount of debt. If so, this may prevent you from buying a giant property right once (if you carry too large a mortgage, some of it will not be deductible).

If you desire a bigger property down the road, you may perform a 1031 tax exchange and finance the difference while staying within the mortgage interest deduction threshold.

So, while the interest is effectively "free," there is a delay in reclaiming it against your taxable income, which you will do only yearly.

Advantages of Renting

If you are someone considering renting, read below to find when renting will be better.

  1. No Maintenance Costs or Repair Bills

One of the advantages of renting a house is that there is no need for maintenance and repair expenditures. This implies that your landlord is responsible for all maintenance, upgrades, and repairs if you rent a home. When an appliance breaks down, or your roof begins to leak, you notify your landlord, who is responsible for repairing or fixing it.

On the other hand, Homeowners are liable for all expenditures associated with house repairs, upkeep, and remodeling. It can grow pretty expensive depending on the nature of the work (and when several tasks appear simultaneously).

2. Amenities 

One more advantage of renting is having access to facilities that would otherwise be too expensive. Many midscale to premium apartment complexes has amenities like an in-ground pool and a fitness facility. 

Although owning a home is a lifelong ambition for many Americans, it is not for everyone. House ownership rates in the United States are now high, but this has not always been the case. 

Traditionally, families had to either build their own homes or rent one from someone else. While renting has its drawbacks, it also has its benefits. For other people, renting makes more sense because of their financial situation. We've compiled a list of ten of the most compelling reasons to rent rather than purchase a house.

3. No Real Estate Taxes

Renters do not have to pay property taxes, which is one of the primary advantages of renting over owning. Real estate taxes may be a significant financial burden for homeowners, and they differ by county. Property taxes may be expensive in certain places, costing hundreds of dollars every year.

Property taxes are calculated based on the anticipated property worth of the house and the quantity of land on which it is built, despite the fact that they might be complicated. Property taxes may be a substantial financial burden for homeowners as new structures get larger and larger.

4. No Down Payment

The upfront fee is another area where renters have a better financial offer. In most cases, renters must pay a security deposit equivalent to one month's rent. And that's generally the end of it. If they don't damage the rental property, the deposit should be refunded to them when they move out.

When you buy a house with a mortgage, you'll need a substantial down payment, usually approximately 20% of the property's worth. Of course, making a down payment means you have equity in your house, which grows as the mortgage is paid off. And if you buy a property outright, you have a valuable asset that renters will never have.

Even so, a down payment on a home is substantially higher than a security deposit on a rental. A $40,000 down payment on a $200,000 home is 20% of the purchase price. In July 2020, the average rental in Nyc, one of the most expensive cities in the United States, was $4,801. 1 Renting is a preferable option for those who cannot afford a down payment

5. No Strings Attached 

The main reason people rent is that they don't want to stay there for a long period of time. For example, those who are students and will leave the area after 3 - 4 years. Or those who are in the city for touring - it is best they rent instead of buying.  

Owning

Intangible benefits such as a sense of stability, belonging to a community, and pride of ownership come with homeownership. It is not, however, suitable for restless or migratory individuals. 

If the property market is down, you might not be able to sell when you desire. Even if it's up, selling incurs substantial transaction fees. When you buy a home, it is much more expensive to change your mind about where you want to live.

The total cost of owning is often higher than the total cost of renting. Even if the monthly mortgage is comparable to (or less than) the monthly rent, this is true.

Advantages of Owning

Read below to find the advantages of owning a house over renting.

  1. Rents Keep Skyrocketing

The cost of rent has risen at a breakneck pace across the country. This pattern is likely to persist. According to statistics from the Urban Institute, rent has risen significantly faster than the median income in many regions.

Due to the high cost of rent, a monthly mortgage payment is frequently equivalent to, if not cheaper than, renting a property. The Rent vs. Buy Calculator on Zillow can tell you how many years it will take for the cost of buying to equal the cost of renting – also known as the break-even horizon.

2.  Long Term Investments

Paying your landlord and having nothing to show for it the next month is what renting your house entails. Homeownership is a fantastic investment since it forces you to save. When you take out a 30-year mortgage and pay the monthly, you will eventually own a property that you can sell. However, if you rent a home for 30 years, you will never see any of your monthly rent payments returned.

3. Historically Low Rate of Interest

With today's low-interest rates, the case for purchasing rather than renting becomes even more compelling. A seemingly insignificant variation in your mortgage rate might have a significant impact on your monthly payment. Interest rates are still at historically low levels.

 As a result, now is an excellent moment to buy a house and take advantage of cheap interest rates. By locking in a low 30-year mortgage rate now, you may save hundreds of dollars every month for decades. When weighing the advantages of owning vs. renting, you'll see that many current rental rates are greater than a mortgage payment, and you'll miss out on an annual tax break.

4. Gift Money

A $25 check from Granny is always a lovely birthday present. If Grandma or another member of your family could help you out a bit more? One that can accumulate and be used as a deposit for a house of your own. Is there anything like that? 

Like it or not, gift money can be utilized as a down payment. The sum you are eligible to borrow is determined by your loan company. You could have to come up with some money to help with the down payment, but it'll be a lot less than you'd have to come up with on your own.

Owning or renting - both have advantages and disadvantages - it is for you to decide which one suits you best. 

 

Renting vs. Owning Guide

 

 

Work With Latoya

Latoya is committed to providing her clients with a 5-star experience whether you are a first-time home buyer, seller, or investor. With over 10 years of experience in Corporate America, Latoya's passion for assisting others is unmatched. If you're planning on buying or selling in the Upstate area, contact Latoya Clark directly.

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