Renting vs. Owning
Family Economics and Financial Education
Take Charge of your Finances
1.9.3.G1
Introduction
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Housing is the largest personal expenditure.
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About 1/3 of a person’s income.
Choosing where to live is based upon a person’s goals,
values, needs, and wants.
Places to live include:
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House, apartment, condo, mobile home, etc.
© Family Economics & Financial Education – Revised March 2009 – Housing Unit – Renting vs. Owning a Home
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.9.3.G1
Reasons for making a
housing choice
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Personal and financial goals
Personal values, needs, and wants
Amount of money available for housing costs
Financial resources and readiness
Credit history
Real estate prices
Location preference
Expected length of stay in particular place
© Family Economics & Financial Education – Revised March 2009 – Housing Unit – Renting vs. Owning a Home
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.9.3.G1
Costs of renting
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Monthly rent
Security deposit
Utilities – electricity, water, garbage, etc.
Renter’s insurance
© Family Economics & Financial Education – Revised March 2009 – Housing Unit – Renting vs. Owning a Home
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.9.3.G1
Renting
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A lease is a legal contract between the tenant and the landlord, specifying the
responsibilities and rights of both parties.
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Identifies the rent amount, security deposit amount and specifications, payment
for utility bills, late payment penalties, length of lease, eviction terms, etc.
This is between the landlord and the tenant
Landlord
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Owner of the rental property.
May perform management duties or hire a property manager.
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Property manager - may charge a fee to the landlord to perform the management task
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Duties may include:
May collect rent and deposits, pay utility bills, complete repairs and maintenance, watch
over the property, respond to tenant complaints, assign new tenants, etc.
© Family Economics & Financial Education – Revised March 2009 – Housing Unit – Renting vs. Owning a Home
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.9.3.G1
Renting continued
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Tenant (renter)
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Renters are generally
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The person who rents the property.
People who choose not to own a home.
People who cannot afford to own a home.
The tenant pays rent to the landlord which allows them to live in
the rental property.
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Rent
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The cost of using someone else’s property.
© Family Economics & Financial Education – Revised March 2009 – Housing Unit – Renting vs. Owning a Home
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.9.3.G1
Moving into a rental
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Upon moving into a new place, people are usually
required to pay a security deposit and sign a lease.
Security deposit
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An advance payment to cover anything beyond normal wear
and tear on the unit.
© Family Economics & Financial Education – Revised March 2009 – Housing Unit – Renting vs. Owning a Home
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.9.3.G1
Advantages of renting
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Low move-in costs
Fixed monthly expenses
Easy to move
Location choices (may be close to
work or school)
Less maintenance and repair work
Fewer responsibilities
May offer extra amenities such as a
tennis court or pool
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Typically less expensive than home
ownership
May be able to save for other
wants or needs if renting a less
expensive apartment
Other expenses may be included in
rent payment such as electricity,
water, sewer, and/or garbage
© Family Economics & Financial Education – Revised March 2009 – Housing Unit – Renting vs. Owning a Home
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.9.3.G1
Disadvantages of renting
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Subject to terms of a lease
Rent may change with little notice
Less privacy and transient
neighbors.
Restrictions on noise level, pets,
etc.
Fewer opportunities to upgrade
apartment such as new carpet,
paint, or wallpaper.
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When leaving a property, no
equity is returned as it would be if
selling a home.
No tax deductions
May lose rental if the property is
sold.
© Family Economics & Financial Education – Revised March 2009 – Housing Unit – Renting vs. Owning a Home
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.9.3.G1
Costs of ownership
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Monthly mortgage payments
Down payment (one time cost)
Closing costs (one time cost)
Utilities – electricity, water, garbage, etc.
Homeowner’s insurance
Real estate property taxes
Maintenance
© Family Economics & Financial Education – Revised March 2009 – Housing Unit – Renting vs. Owning a Home
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.9.3.G1
Home ownership
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Home ownership - the buyer has purchased a housing unit as
property
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Goal of many Americans
A large financial decision
Owning a home is an investment because if a person sells a
home for more than what it was bought for, the person makes
money. This is called equity.
Financial planning and savings can assist a person in planning
for the benefits of home ownership later in life.
© Family Economics & Financial Education – Revised March 2009 – Housing Unit – Renting vs. Owning a Home
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.9.3.G1
Purchasing a home
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90% of buyers take out a mortgage
– A home loan in which the real estate is the collateral
– Collateral is an item promised to the lender if the borrower does not
pay back the loan, usually the home.
Down payment
– Amount of money paid on the home at time of purchase
– Typically 10 – 20% of the purchase price of the home
Recommended purchase price amount an individual should pay for a home
– 2 ½ times their annual household income
© Family Economics & Financial Education – Revised March 2009 – Housing Unit – Renting vs. Owning a Home
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.9.3.G1
Advantages of ownership
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Build equity which can be
borrowed against if
necessary
Pride of ownership
Feel more comfortable and
have more privacy
Stable mortgage payments
More room and storage
Improvement of buyer’s
credit rating
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Income tax deductions for
property taxes and mortgage
interest
Potential for property to
increase in value
Free to make home
improvements and have pets
(items typically not allowed in
rentals)
© Family Economics & Financial Education – Revised March 2009 – Housing Unit – Renting vs. Owning a Home
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.9.3.G1
Disadvantages of
ownership
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Large down payment
Move-in costs
Insurance costs
Possible for property to
decrease in value
Time, money, and energy
commitment
Repair and maintenance
costs
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Property taxes can raise
substantially
Money is tied up in the
home
May take several months to
sell a home if trying to
relocate
© Family Economics & Financial Education – Revised March 2009 – Housing Unit – Renting vs. Owning a Home
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.9.3.G1
Keep In mind. . .
People are always paying
for a home. It’s just a
matter of whether it is
for themselves or
their landlord.
© Family Economics & Financial Education – Revised March 2009 – Housing Unit – Renting vs. Owning a Home
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona