The Benefits Of Renting Over Owning
By Bruce Roberts
While home ownership allows you the chance to build equity, decorate how you want and own your own home, sometimes renting can actually be the wiser financial choice. In addition, renting a property reduces your own workload for home maintenance. To learn about the many benefits of renting versus owning, keep reading.
Equity vs. Investments
It's true that paying a mortgage versus paying rent means you're building equity in your home. However, you could actually be losing money, especially when the market is in a downturn.
Let's say you would spend $2000 a month on your mortgage, not including your home maintenance costs and taxes, and your home is either currently depreciating or only appreciating at a nominal rate. But, your current rent is costing you only $1200 a month. If you invested that extra $800 a month in even a low-yielding savings account, you could actually build more financial assets at a faster rate than a home could.
Now throw in your home maintenance expenses and taxes that we excluded above - also adding in additional amounts for almost inevitably higher homeowners insurance, gas, electric, water, and potentially neighborhood covenant fees - and the savings you realize each month through renting becomes even more noticeable.
Maintenance and Workload
When you rent instead of own, you typically don't have to think about managing the grounds, doing repairs, maintaining appliances or fixing the roof.
Not only do you save on the time and labor that home maintenance takes, but you also save on the cost. Most new homeowners should expect to budget between $200 to $300 a month for home repairs and maintenance. That's $200 to $300 that you could be investing and hours of time that you can spend enjoying the benefits of your returns.
Taxes and Liabilities
Property taxes are typically the responsibility of the land owner. This means, as a tenant, you're not responsible for property taxes, which usually cost a few thousand dollars per year, depending on the county assessed value of the property.
In addition to saving on taxes, you can also save on liability risks and insurance. Outside of your apartment, and sometimes even inside your apartment, your landlord is taking the liability risk if someone trips, injures themselves and decides to sue.
Because of reduced liability and, of course, a lack of invested equity in the property, tenant's insurance is significantly less than home insurance - as noted earlier. As a tenant, you're only insuring the contents of a property and your own limited liability, not the property itself. That's another few hundred dollars every year that can go into your investment account rather than into your property.
Admittedly, there are benefits to owning a home - whether it's decision-making power, space, long-term ownership and financial return, or not having to put money in your landlord's pocket. However, if you look at a home as an investment, and weigh it against the returns you can achieve through other means of investment, you'll quickly see the rate of return might not be as great as you think. Renting definitely has its advantages.