Renting vs. Owning

1
Renting vs. Owning

• The Difference Between
• Renting and Owning a Home

2
Outline

• Introduction
• Reasons for making a housing choice
• Comparison of Expenses
• Renting
• Advantages and disadvantages
• Owning
• Advantages and disadvantages

3
Introduction

• Housing is the largest personal expenditure
• About 1/3 of a persons income
• Choosing where to live is based upon a persons
  goals, values, needs, and wants
• Places to live include
• House, apartment, condo, mobile home, etc.

4
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

5
Costs of Renting

• Monthly rent
• Security deposit
• Utilities electricity, water, garbage, etc.
• Renters insurance

6
Costs of Ownership

• Monthly mortgage payments
• Down payment (one time cost)
• Closing costs (one time cost)
• Utilities electricity, water, garbage, etc.
• Homeowners insurance
• Real estate property taxes
• Maintenance

7
Renting

• Rent
• The cost of using someone elses property
• 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

8
Renting continued

• 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 tasks
• Duties
• May collect rent and deposits, pay utility bills,
  complete repairs and maintenance, watch over the
  property, respond to tenant complaints, assign
  new tenants, etc.

9
Moving into a Rental

• Upon moving into a new place, people are usually
  required to pay a security deposit and sign a
  lease
• Security deposit
• An advance payment to cover anything beyond
  normal wear and tear on the unit
• Lease
• 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.

10
Advantages of Renting

• 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

• 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

11
Disadvantages of Renting

• 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

• 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

12
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

13
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

14
Advantages of Ownership

• 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 buyers credit rating

• 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)

15
Disadvantages of Ownership

• Large down payment
• Move-in costs
• Insurance costs
• Possible for property to decrease in value
• Time, money, and energy commitment
• Repair and maintenance costs

• Property taxes can raise substantially
• Money is tied up in the home
• May take several months to sell a home if trying
  to relocate

16
Keep In Mind. . .

• People are always paying
• for a home. Its just a
• matter of whether it is
• for themselves or
• their landlord.