Pros and Cons of Renting
Now that you know the things to consider when deciding what housing will fit your needs, lets
take a look at the pros and cons of renting versus buying.
Renting has advantages for most people at some point in their lives. This is especially true when
you are starting out on your own as a young, single adult. As we noted above, renting an
apartment involves no responsibility for repairs, maintenance, and other aspects of home
ownership that can be both costly and time-consuming. Rental complexes may also provide
many of the recreational facilities you would like, such as a swimming pool and tennis court.
Apartments and other rental units often provide laundry facilities, which would save you the
initial expense of purchasing laundry equipment.
Another advantage of renting is that it provides more mobility or
flexibility. As a young person, you are more likely to move rather
frequently due to job changes and family changes (getting married,
having children), etc. It is easier to move quickly when you are
renting, because leases for rentals are easier to get out of than
selling a home. A lease is a contract between the landlord and the
tenant indicating that the tenant has the right to use a particular
living unit for a period of time, such as one year. For this right, the
tenant promises to pay the landlord a specified amount of rent over
the period of time of the rental. Most leases will allow you to "buy
out" of the lease by paying a penalty (often an additional 1-2
month's rent) if the lease is not up when you want to move. In some
cases, the landlord will require no additional rent when you move
out early if another renter suitable to the landlord is found who will
assume your lease. Selling a home when you decide to move is usually a much longer processtaking months and sometimes years. The length of time depends on a number of factors
including the available supply and demand for homes in an area and the relative demand for the
type of house that you put on the market. For example, if you own a two bedroom older home,
and that type of house is not currently popular in your area, your house will likely not be sold
very quickly.
Another major advantage of renting is that it doesn't require a large a lot of cash. Most rentals
require a security deposit (usually equal to 2-3 month's rent), but that is much less than is
normally needed for a down payment when buying a home. Monthly cash costs may also be
reduced, as utilities may be included in your rent payment.
There are, of course, disadvantages to renting. Have students identify those. List them here:
[restrictions on pets]
[restrictions on
decorating]
A major disadvantage of renting is lack of control over the property. The owners/managers of the
property are responsible for repairs and general upkeep; if they do not do this well and promptly,
you might be stuck with unpleasant (or even unsafe) living conditions (from leaking faucets to
broken windows) for some period of time. Property owners can raise the rent (with proper
notice), making your costs higher. They can also put restrictions on the property, such as not
allowing children or pets, and not permitting you to do redecorating.
Renting also provides no tax or equity benefits for you. Although you are helping pay the
owner's property taxes through your rent, you cannot claim any deduction for these taxes on your
tax return. The owner is also gaining equity in his/her property, but you are not. Equity is
increased value in any property you own. But, as a renter, you are not building any equity.
Pros and Cons of Buying a Home
We've already discussed some advantages of buying a home. Have students list the advantages of
buying that they already know:
[control over your
[pets allowed]
property]
[more personal freedom]
Many of the advantages of home ownership have to do with your feelings - pride of ownership;
freedom to decorate, landscape and maintain the place to your tastes; security and independence.
All of these are aspects of control - your control over the property in which you live. But the
biggest advantage of home ownership might be financial. There are several financial advantages
including equity; tax deduction for mortgage, interest and
property tax deductions.
Building up financial equity in a home is one benefit of home
ownership. Since most homes increase in value over time, the
owner's equity increases. For example, if you buy a home for
$l80,000 and its market value increases to $200,000 in three
years, the difference of $20,000 is an increase in your owner's
equity. Of course, the housing market (and economic
conditions) vary, so, like any investment, there is no guaranteed
return.
Another way in which buyers increase their equity is through paying off their debt on the house.
Most people do not buy their homes with cash. Instead, they take out a mortgage (debt) on the
house. Generally, they make a payment on the mortgage each month, similar to the payments
make. With home ownership, though, part of that monthly payment goes toward paying down
the debt. As they pay down the debt, buyers gain more equity in their home.
Tax benefits are the other advantage of home ownership. In Lesson 6, we will discuss the cost of
borrowing money to buy a home. That cost is "mortgage interest" - the money you pay for the
use of someone else's money (usually a financial institution's) when you borrow funds to buy a
house. Although mortgage interest is a large part of your housing payment, you can deduct this
interest from your taxable income on your federal income tax return and (in some states) on your
state income tax return. This can save you a fairly substantial amount of income tax. In addition,
you will pay property taxes on a home that you own. Those property taxes are also deductible
from taxable income on your federal income tax return and some state income tax returns, and
thus offer you additional income tax savings.
The disadvantages of owning a home is that you have to save a lot of money in order to purchase
a home. This is very difficult if you don’t have a good paying job. You also have to save a lot
of money for a down payment. Another disadvantage is that you must fix or pay to have repairs
done. The value of your home may go down and you might lose money if you had to sell it.
The last disadvantage is that you must use most of your savings for a down payment and then
you may not have much money for necessities.
Renting vs. Buying: What is Right for You.