Posts Tagged ‘renting’

Understanding the Descision to Rent or Purchase a Home

Purchasing a home is a big investment and like all big investments it is one that should be made carefully. There are quite a few advantages to owning a home, but there are also a number of disadvantages, especially if it is something you rush into.

One of the biggest disadvantages of owning a home is that it in many ways reduces your freedom, as most people are financially and legally tied to a home. This means that if you do not like your neighbors, you can not just leave, and if you do not like the city regulations, you can’t just move a little further out. This translates to a lot of reduced freedom, which is often taken for granted by renters, who whether they know it or not, are in most cases at most going to loose their deposit if they decide they would like to change location.

However, for many, this is not a disadvantage at all, as it does provide a strong sense of security and really helps the homeowner understand that it is more than just a few rooms and a bath, but it is actually some place you can call home. Still, it is something that should be considered and fully understood before buying a home.

Another disadvantage to owning a home is that if things break, you have to fix it, either by doing the work yourself or by paying someone, but ultimately, when the AC goes out in the summer, you can’t just call up and complain to your landlord. There are a number of federal and state regulations in place to protect renters, which ensure that rental properties meet a certain set of standards, so if your rental property isn’t meeting these standards, such as not having a heater, you have the power of the law behind you to ensure that the landlord meets these requirements.

While this can be a disadvantage for some, it is also a positive things for others. This is in part because it means you get to decide how you use and change your home. For example, if you do not like the living room, you can simply tear out the wall and start over, presuming it isn’t load bearing anyway. Along the same lines, if you would rather have a tank less water heater or a more energy efficient heat pump, you can install one and will not be held to whatever your landlord decides to install. Of course, this does mean it comes out of your pocket, but most of these types of improvements help improve the value of the home, so ultimately it ends up being, at least partially, a long term investment.

As the above examples show, there are not only advantages and disadvantage to owning a home, but it is never simply black and white either, with there usually being a positive side to most negatives. However, buying a home is a big decision and one that bears thought, so it is essential to consider all of the aspects associated with buying a home, including the mortgage or other loan sides.

Renting Vs Buying: Advantages and Disadvantages

Buying a home is a very big investment and not one that should be taken lightly. It is important to consider both the benefits and drawbacks to owning your own home, while comparing these to your personal situation. This will help you decide whether it is better to rent or purchase a home.

Renting a Home or Apartment

When you rent a home or an apartment, the monthly payment is paid to a landlord. Often, this will be the actual owner of the home, but property management companies are also popular. In either case, the rent is due at a set point each month and is paid to the property owner. As a result, money paid is not an expense each month, which comes out of pocket for the renter.

One of the major advantages of renting is that as a renter, you are not responsible for repairs or any other maintenance, aside from things like mowing the lawn or perhaps changing the filters. This doesn’t mean that you aren’t responsible for damage, but it does mean that the renter is not responsible for repairing things like the roof or the air conditioner. So, if the plumbing burst in the middle of the night, you can simply call up the landlord and by law they must come and repair the problem.

Another advantage of renting a home is that there is usually little tying the person to the home. So, for example, if they decide they want to move to a new city or a new area, they can do so with few repercussions. In the worst case scenario, assuming there is no damage to the apartment, the renter will loose their deposit, but this only happens if they break their lease.

However, there are several downsides to being a renter. One of the biggest ones is a general lack of privacy. This is because the home owner or rental property can come into your house basically whenever they want, providing they follow a few basic rules.

Also, while not having to worry about repairing things, such as a broken washer, can be nice, you can not actually modify the home as you please. Sometimes the homeowner may allow a renter to paint the walls, but this is usually it and requires the approval of the landlord.

Another disadvantage is that since a renter does not own the home, living in the home is a privilege. A disagreement with the landlord can lead to an eviction and if the landlord dies or sells the home, there is no way to guarantee you will be able to stay after the lease expires.

Buying a Home

Buying a home has a number of advantages and can be a wonderful experience, but since most people don’t have the money for the home upfront, they must take out a rather large loan called a mortgage. This means that even though you technically own the home, the bank has a lien on it and if you miss too many payments, you risk loosing the home and being foreclosed upon.

The level of debt can be a little overwhelming, but since part of each months payment is going towards the principal of the loan, you are not paying out of pocket in the same way as when you rent a home.

Of course, during the first 5 to 8 years, most of the payment is going towards the interest of the loan. During the first few years, it is common for less than 10% of each payment to actually go towards the principal of the loan. However, with that said, you are not simply throwing your money away in the same way as when renting, as ultimately, assuming the home does not loose value, some of the money paid towards a mortgage is retained.

One of the other main advantages to buying a home is the many tax credits available to a homeowner. From the first time home buyers tax credit, which is a credit of up to $8,000 that does not need to be paid back, to simply being able to claim all of your interest and maintenance costs on your taxes, there are many tax benefits to owning a home as opposed to renting.

Another advantage of owning a home is that you can do pretty much whatever you like to it. This means if you don’t like the carpet, you can simply tear it up and put down a wood floor. If you want to make the living room bigger, you can knock down a wall and don’t have to ask anyones permission.

Of course, the flip side to this is that if something breaks, it will be the homeowners responsibility to fix the problem. So, there is no one to call when the plumbing breaks at 3AM, well except perhaps for a plumber.

It is also not possible to simply walk away from a home if you do not like the area or your neighbors. It will either be necessary to find someone to buy the home or damage your credit rating. This can mean much less freedom, as most people become tied to their mortgage.

Renting vs Buying: Making the Right Decision

rentingOften, the argument of Renting vs Buying comes up and both sides of the debate bring up some very important points. However, in the end, no argument should be taken at face value and instead each person should take the time to evaluate whether renting or buying is best for them.

Why Some People Like Renting

One of the main reasons that many like renting is that if something breaks, you can just call up your land lord and let them worry about it. For example, if the Air Conditioning needs to be replaced, it will come out of the land lords pocket and not yours. This means that you are not reliant upon your own funds or time to fix a problem and instead can simply pick up the phone.

Not only, do you not need to worry about things breaking, but basic home care is seldom the concern of a renter. This means you don’t have to worry about replacing the roof or a tree falling on the home. Instead, usually the biggest upkeep a renter might have to worry about is mowing the lawn.

Another reason many people prefer renting is that it offers more freedom than owning a home does. This is to say, if you want to pick up and move to a different city or even country, you can do so, with little or no consequence. In the worst case scenario, you might be breaking your lease, in which case you would loose your deposit, but aside from this, there are very few ramifications for leaving. This can be especially important when you are young and have not settled down yet.

When you purchase a home, you are also in some regards at the whims of the market. For example, home prices have been dropping for the past year or so and many people now owe more than their home is “worth.” This isn’t necessarily a problem, but if you do decide to sell your home when the value is low, you will loose money. Home values and property values is not something a renter has to worry about.

Buying a home is also a big commitment financially and since most people don’t have the money to buy the home upfront, they must use a mortgage. This means that you not only owe your lender a great deal of money over the course of a long time, but you also end up paying a great deal of interest on the home.

Why Renting isn’t Always Right

Renting offers some advantages, but it also has some downsides. One of the biggest downsides is that at the end of your lease, you don’t have anything to show for all the money you spent. In some regards, it is really money down the drain, as you see no return on the money you spend renting. This differs from owning a home, where each of your payments is going towards the principal of your loan.

Of course, being that most mortgages are for 30 years, much of the money you spend on your home is going towards interest, so this point is arguable. However, in most cases, when you decide you are done with your home, you can sell it and at least get some, if not more, of your money back. This can not be said of renting, in that when you walk away from your rented home, you will have nothing, except perhaps your deposit.

Another disadvantage to renting is that you are at the whim of the landlord. There are of course a number of renter’s rights, so there is some protection, but in the end, if your landlord wants you out, you will end up out.

Also, by renting, you loose a great deal of your privacy. It is not uncommon for the landlord to send someone over every month to check your filters, fire alarms, and ensure the apartment is in good repair. If they decide something needs to be fixed or replaced, there is little you can do to avoid them coming into your home. This is not the case when you own your own home and are, in effect, your own landlord.

Knowing when to Buy and When to Rent

Ultimately, whether renting or buying is best for someone, greatly varies from person to person. What is an advantage to some, might be a disadvantage to others, so it is very important to analyze your current financial and personal situation, to determine what is best for you.

A big part of this decision also comes down to analyzing the current housing market and knowing when to act. For example, house prices are currently at an all time low, as are interest rates. Compared to a few years ago, you can get much more bang for your buck, so it could be a very good time to buy a home. It could be that house prices and interest rates will continue to go down, but they are currently lower than they have been for many years and eventually, the prices will go back up. Knowing when to get your money in, is a big part of deciding between renting vs buying.