Currently, I’m a home owner and I used to be a renter for many years. I’m not going to lie, there is plenty that I miss about renting an apartment. After you’ve removed and installed your own toilets, assembled 3 Ikea closets and installed your own patio floors, you come to appreciate the luxuries you once had as a renter. Moving into a “move in ready” apartment saves you tons of cash and being able to submit a maintenance request to your landlord/management company and have no stress about buying the right tools, supplies or appliances is a great plus!
However, prior to purchasing our home, Vania and I considered every little thing you can think about and what it will mean for our lives in a financial but also lifestyle perspective. There is no one size fits all for this topic. Some prefer renting and some consider their homes an investment. Here is what you should consider from a financial and lifestyle perspective:
From the financial perspective there is a lot to think about…
This will be substantially different for renters and homeowners. Renters only need to worry about the application, other miscellaneous fees the landlord/management charges and 2 months of rent for security deposit, while homeowners are coughing up thousands and thousands of dollars.
For instance, if you’re purchasing a home 20% down is the standard for purchasing a home. A down payment on a $300,000 home is $60,000 (20%). That’s very different than probably $5,000 for 2 months of rent and some fees.
While you can’t customize your place when you rent, being able to customize the home you buy feels great but will cost you thousands of dollars, and that all depends on your taste and how much you want to customize your home.
My favorite part about renting was that you don’t need to worry about maintenance. Put in a service request and you’re good to go. On the other hand, when you own a home, you ARE the maintenance and repair guy! Unless you want to contract a handyman or specialist every time you’ve got a plumbing issue. The truth is, when you own a home you will learn to deal with the issues, have your own DIY projects and watch a lot of YouTube videos to figure things out.
Whether you rent or buy, you will need to deal with having insurance. But your renters insurance will be much cheaper than homeowners insurance, that’s for sure.
As a home owner, the home’s value and appreciation can earn you a strong rate of return. When you rent, there is no rate of return or appreciation of your money because you don’t own the property. This is the benefit you lack when you rent.
For instance, within the first 2 years my home value has appreciated by $32,000! This is appreciation that we recognize for our equity and our net worth.
Your monthly payments, for a comparable property, will vary as a home owner and as a renter. This all depends on the market you live in, but there is a very good chance that the monthly mortgage payment will cost you less than a comparable rental property. There are a lot of variables that go into this analysis, such as how much you gave in down payment, the interest rates, taxes, HOA fees, etc.
Home Owners Association (HOA)
As you shop for a home, don’t forget to consider the HOA costs. The costs vary depending on the community and the amenities it offers. This is a benefit renters don’t need to worry about because the monthly rent covers everything. HOA fees can make or break your home selection…I know that it has for me.
You may hate them, but you can’t hide from them. As a homeowner, you’ve got property taxes to consider. The taxes will fluctuate based on the city and county you live in, so make sure to ask your realtor about the taxes in your neighborhood and look up the information online. Also, states offer tax benefits for homeowners so checkout the benefits and become familiar with them. As a renter, you get a pass on this one because you don’t have to worry about paying taxes for the property.
While the financial considerations are extremely important, you’ve got to strike the right balance with the lifestyle you are looking for.
As a renter, you can practically get up and go. You can break contracts and you can easily move from one city to the next. As a homeowner, it gets complicated because this is a long term commitment. It won’t be as easy to get up and move because you need to sell/rent your home and the outcome all depends on the market conditions. Plus, you don’t want to sell if your house hasn’t appreciated in value and if you don’t have enough equity. Typically, you should wait around 5 years before you sell your home and even then, that comes with the caveat of how the markets and economy are performing.
Being a home owner brings a lot more responsibility. Like I mentioned before, you are the handyman and repair guy/gal unless you are willing to pay hundreds for a contractor. Repairs aren’t as intimidating as they may seem so don’t worry about getting your hands dirty.
As a renter, you take it as is because the property ain’t yours. However, some landlords allow some changes like customized paint but it will come with a fee. On the other hand, this is the fun part about being a home owner because you can do whatever you want to it…it’s yours! Just make sure you follow municipal codes and HOA guidelines.
At the end of it, you’ve got to find the right balance for your lifestyle and take a hard look at your financial position. Sometimes it’s tough to think about where you can be 1 – 5 years ahead, but the long term commitment and time you will dedicate to your home will be a huge variable to consider as well.
I found a great tool on Zillow, which will help you calculate the difference between renting and buying a home. The numbers speak for themselves and you may be surprised just by how much you can actually save in the long term when you purchase a home.
Rent vs Buy Calculator – https://www.zillow.com/rent-vs-buy-calculator/