Are you looking to move? Should you rent or buy? There are lots of factors to consider, and the decision can only be yours. Renting has some marked advantages over buying. Below are eight specific ones:
- Down Payment – If buying, you’ll likely need to put significant cash down upfront (typically around 20%). For a $200,000 home, that’s $40,000 plus settlement cost and pre-paid fees. Settlement cost and pre-paid fees can add anywhere from 2% to 5% to the purchase price of the home. Examples of settlement costs when purchasing include transfer tax which can range from 1% to 2.05% of the sales price, mortgage fees which can range from 1% to 2.5% (of the mortgage amount), title insurance and recording fees which can be ½% of the sales price. Examples of pre-paid fees when purchasing include legal, inspection, and home association fees. For a $200,000 house, these settlement costs and pre-paid fees can add $4,000 to $10,000 to the cost of the home. If you rent, generally there is only a modest security deposit and your monthly rent due in advance of moving into your new residence.
- The Myth of a Home Purchase as an Investment – For many years, buying a home was considered an investment opportunity. Homes only went up in value, adding tens of thousands of dollars in profit as well as easily recovering the cost of the settlement charges, and upfront prepaid fees. This myth nearly destroyed 1 out of every 7 family’s life savings in the recession of 2007 to 2010. Homes lost as much as 20 to 30% of their value and were very difficult to resell or to refinance. Purchasing a home may be the right choice for a family, but the decision to buy should not be based solely on it being considered an investment opportunity.
- Speed of Move In – Buying a home is a time and cash intensive process. You must allow for a lengthy pre-approval process with a bank or other financial institution which can take 4 to 6 weeks. Additionally, you must allow time for inspection, closing, and potential pre-approval from the homeowner’s or condo association. This is after you spent the time to search for a home and negotiate a sales price. With renting, you can potentially find, apply, get approved, and move-in in a matter of a few days to a couple of weeks.
- Near Instant Mobility – Standard lease terms for a rental are 12 months. With proper notice to your landlord (usually 60-90 days), you can pick up and move out at the end of 12 months without penalty. For a bit more rent per month, you can generally get a shorter lease term. If you are buying and want to move out, it can take many months (if not longer) to find a buyer. Plus, you are always subject to the risk when selling a property of recovering not only the original sales price, but the additional monies you paid beyond the sales price for settlement costs (transfer tax, mortgage fees, title insurance, recording fees) and pre-paid fees (legal, inspection, home association fees, and other fees). Additionally, when you go to sell the house, you should account for the cost of resale, which typically includes a broker’s commission of 5 to 6% plus transfer tax of 1% to 2% (depends on locality). Even in a relatively strong housing market, it may be difficult to recover these prepaid expenses in less than several years of ownership. The cost to sell a $200,000 home is in the range of $12,000 to $16,000, plus the $4,000 to $10,000 or more dollars from settlement costs and pre-paid fees. If you are relocating because of work (non-voluntary) or a change in financial condition, you may have to suffer a significant loss to relocate. Today more and more renters are “renters by choice” because of the many advantages, including near instant flexibility and mobility associated with renting.
- Maintenance Included – Things break and need repair. If you buy, you are the owner and are responsible for repairs. Not only can repairs of even minor problems be expensive, but they are often extremely time-intensive. When something breaks, you’ll need to find, contact, and schedule reliable vendor(s). While it’s possible to find one firm that can do a lot, you’ll find you often need reliable specialists for heating/air conditioning, plumbing, roofing, pest control, and more. If you rent, generally the landlord and/or management company is responsible for maintenance and repairs. Homes are in constant need of repairs, even newer homes.
- Lawn Care Included – When you buy, you are generally responsible for all lawn care, including cutting the grass, managing weeds, and any landscaping. This is tedious and expensive. In the winter, you’ll likely need to clear sidewalks and driveways from snow and ice. For the renter, the cost of such service is generally included in your rent. The everyday care of a home requires a significant investment in time.
- Near Instant Neighborhood/Location – When renting, you have an instant neighborhood of people around you, and the potential for many new friends with similar interests. Apartment communities promote social gatherings. Apartment communities are often located near transportation routes, and shopping which makes travel to and from work an easier commute, and entertainment more convenient.
- Amenities Included – When you rent, you generally have the advantage of many amenities within the apartment community including a swimming pool, club house, or exercise room.
There are lots of other reasons to rent versus buy, but of course it’s a personal decision, and one that only you can make. The surge in rentals is primarily due to a change in the length of employment, job security, attitudes, desire for more personal time, cost effectiveness and more convenience.