Many people are averse to taking a risk on home buying today so they are turning to renting. But does renting really make sense?
Buying a home used to be The Great American Dream. It was an investment as well as a sign that you were successful. However, things have gotten trickier as time has gone on. Ups and downs in the housing market have made some people unsure about whether owning a home is a smart investment after all. Changes in other related issues also have an impact on people’s opinions about buying a home. Those issues include insurance issues, an apparent increase in the number of natural disasters in some areas, property tax changes and growth in the number of homeowner’s associations and the fees that they charge. All of these things can make people whose parents couldn’t wait to live The American Dream of homeownership decide to rent instead. But does renting really make sense?
Benefits of Renting
There are definite benefits to renting a home rather than buying one. Some of those benefits include:
- Lower monthly bills. In many cases it costs less to rent a home than to pay off a mortgage each month. Note, however, that if you save up for a good down payment on a home and get a good rate for the loan then this may not actually be true.
- Utilities may be included in your rent. If this is the case then it decreases your monthly bills further.
- Renter’s insurance is a lot cheaper than homeowner’s insurance. And of course you don’t even have to have renter’s insurance although it is recommended.
- No maintenance costs. When something breaks, you just call the landlord and it is his or her responsibility to deal with it. You are not responsible for repairs at a rental property whereas you have to take care of all of the maintenance when you’re a homeowner.
- No property taxes. That’s the landlord’s responsibility.
- No financial risk. When you’re a renter you pay your rent every single month in a straightforward transaction. The biggest risk that you take with your money is that you’ll lose your deposit if you fail to properly care for the home. When you own a home, you run the risk that the home’s value will go down and you’ll lose a lot of money because you won’t be able to sell it.
Drawbacks of Renting
Despite the many benefits of renting a home, there are also a lot of drawbacks that you’ll experience when you decide to rent instead of buying. Those drawbacks include:
- No potential for financial gain. When you own a home, the money that you put towards your mortgage is an investment. You can sell the home to recoup some of that money down the line (or even make a profit if the market is in your favor). You will never get your rent money back.
- You don’t build up home equity. Another major related issue is the fact that each mortgage payment that you make helps you build equity in your home. That’s money that you can access in the form of a loan if you need to. Renters don’t have that equity.
- No tax benefits. Homeowners often get tax credits and other benefits that aren’t available to renters.
- Limitations for getting a good credit score. If you can own a home and make your mortgage payments on time then you’re going to have a better credit score than someone with the exact same credit situation who is a renter instead of a homeowner.
- Landlords don’t always treat you right. As a renter you may have to deal with a landlord that doesn’t want to promptly or properly fix problems on the property. Although there are legal steps that you can take if this happens, it can be a big headache.
Why Buying Makes Sense In This Market
Buying a home makes more sense than renting a home for most people despite some of the benefits of renting. This is especially true in today’s housing market. Housing prices are low and are likely to eventually rise again one day so real estate is a wise investment. Moreover, mortgage rates are currently low for many homebuyers, which means that it may even cost you less to own than to rent. Don’t be afraid to chase the American Dream.
Is there anything holding you back from buying a home?
This is a guest post by Kitty Vogen. She writes about all aspects of real estate including mortgages and buying a home. She loves the San Diego area and is currently very interested in La Jolla Homes.
Image: Filomena Scalise
