July 1, 2013
Why Renting is Financially Better Than Buying a Home
Homeownership is a life-goal for many renters. While it is a common belief that buying is better financially than renting, there are experts that support the opposite view. It might go against conventional wisdom, but many believe that renting has several financial advantages over purchasing a house or condominium. This is especially true when the economy is poor.
Consider the following reasons why renting might be a good plan for first time home buyers.
1. No maintenance or repair costs
A huge advantage that renting has over owning is the lack of maintenance and repair bills. When renting, the landlord is responsible for all maintenance and repairs. If an appliance breaks or the roof leaks, you have no financial responsibility. If you own a home, you have to pay for those repairs. As a homeowner, you are also likely to need to purchase a lawnmower or to pay someone else to care for your grass. Fences need to be maintained. Homes need to be painted. Roofs and furnaces need to be replaced.
2. Renters frequently have amenities
Most apartment complexes have amenities the average homeowner does not. These are things like swimming pools, tennis courts, and access to exercise equipment. These extras are prohibitively expensive for most homeowners. Just look at the cost of a nice in-ground pool or the cost of your own tennis court.
3. No taxes
Other obvious benefit to renting is the lack of real estate taxes. Depending on where you live, real estate taxes can be very expensive and they never go away. It’s simply a bill that never gets paid off.
4. No down payment required
Renters may have to come up with the deposit, but the deposit is a lot less than the down payment on a home. Consider that a down payment is typically $10,000 or more. It is much cheaper to into a new apartment than it is to move into new house or condominium. Also, consider all the costs associated with purchasing a new home. There are mortgage fees, appraisals, inspections, and points to pay.
5. Lower insurance costs
Renters insurance is significantly less expensive than a homeowners policy. The average renters policy is under $15 a month while homeowners policy usually around $50 a month. Sure, it’s only $35 a month, but $35 a month is $420 per year and $12,600 over 30 years. It adds up.
6. Lower utility costs
Apartments are usually smaller than homes and are easier to heat. Apartments usually have neighbors directly next to them and above and/or below. By not having a lot of wall space exposed to the outdoors, apartments can be much cheaper to heat.
7. Losing property value
In a poor economy, it is not uncommon for real estate to lose value. This can have a significant effect on homeowners. Property values really do not affect renters in the same way. A new homeowner can easily end up in a position where he or she owes more on the house than it’s worth. Renters also find it easier to downsize, since moving into a new apartment has a minimal cost. Renting has much greater flexibility than homeownership.
There are many financial advantages to renting instead of purchasing a home. Many experts believe renting is less expensive over the long haul, and renting is certainly less expensive in the short term. Before you purchase a house or condominium, be sure to sit down and do the math and consider all of your options. You might find that renting is the better option. It’s something to think about.
Melissa Wood contributes as an editor at RateSupermarket.ca. Obsessed with finding small ways to save money every day, she enjoys sharing her frugal lifestyle to the MoneyWise Blog. Read more about Melissa on her Google+ page.