Renting vs. Owning

1. Renting vs. Owning Family Economics and Financial Education Take Charge of your Finances

2. Introduction • Housing is the largest personal expenditure. • 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: • House, apartment, condo, mobile home, etc.

3. Reasons for making a housing choice • 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

4. Costs of renting • Monthly rent • Security deposit • Utilities – electricity, water, garbage, etc. • Renter’s insurance

5. Renting • A lease is a legal contract between the tenant and the landlord, specifying the responsibilities and rights of both parties. • 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 • Owner of the rental property. • May perform management duties or hire a property manager. • Property manager - may charge a fee to the landlord to perform the management task • 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.

6. Renting continued • Tenant (renter) • The person who rents the property. • Renters are generally • 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. • Rent • The cost of using someone else’s property.

7. Moving into a rental • Upon moving into a new place, people are usually required to pay various deposits and sign a lease. • Security deposit • An advance payment to cover anything beyond normal wear and tear on the unit. Pet deposit • Money in addition to the security deposit that covers damages caused by a pet. Not all apartments allow pets. You may be asked to leave if you house a pet and it is not allowed in your lease.

8. Advantages of renting • 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 • 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

9. Disadvantages of renting • 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. • 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.

10. Costs of ownership • 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

11. Home ownership • Home ownership - the buyer has purchased a housing unit as property • 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.

12. Purchasing a home • 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

13. Advantages of ownership • 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) • 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

14. Disadvantages of ownership • Property taxes can raise substantially • Money is tied up in the home • May take several months to sell a home if trying to relocate • Large down payment • Move-in costs • Insurance costs • Possible for property to decrease in value • Time, money, and energy commitment • Repair and maintenance costs

15. Keep In mind. . . People are always paying for a home. It’s just a matter of whether it is for themselves or their landlord.