Owning a house or renting a property? Find out which one works for you.
There are many things to consider when deciding on buying a house or renting an apartment. Whether you are single and financially independent, a newly married couple, preparing to have children, or just going through a divorce, determining what’s best for every situation is important, as both of these will cost you and it will be included in your monthly priorities.
So, let us discuss the pros and cons of buying and renting a property. Each option has its own fair share of pros and cons that is why it is important to know which one fits your lifestyle.
OWNING A HOUSE
There are some people who choose to buy a house rather than renting an apartment. Rather than paying monthly for the rental fee, which by the way landlords are earning through their renter’s monthly billings, it’s wise to decide to invest it in instead by paying for the monthly mortgage when in return, you’ll be the homeowner. As a homeowner, you’ll have full control over your house with no restrictions often enforced by a landlord. Plus it offers the long term benefits of security, equity and potential growth in personal wealth. It allows you to have greater freedom in terms of renovation, décor changes and landscaping that suits your needs and lifestyle.
Given the sizeable overall costs of buying a home, considering socio-economic forces, homeownership rates, owning a house can be financially advantageous in most aspects. One factor is the tax benefits for house owners; from time of purchase and continually, there are discount points or mortgage points that for every point earned, you’ll gain 1% of the total mortgage. Origination points, for example, are negotiable; it only compensates lenders and they are not tax-deductible and are not always required. But choosing this lowers the mortgage interest rate by .25%. On the other hand, Discount points have prepaid interest that can lower overall mortgage payment. Taxes are deductible at this rate, which means lower interest that can make huge savings.
If at some point the homeowner decides to sell the house, the value of a home will appreciate over time, they can earn a profit from the sale. They can also choose to market their house in terms of house-sharing platforms like VRBO (Vacation Rentals by Owner) or Airbnb (Air beds & breakfast). It can help balance mortgage payments, insurance, and tax payments which help generate income from renting out the property, which also means that there is an opportunity to save money in the long term as there are possible tax deductions related to income-generating properties.
Of course, there are disadvantages when deciding to purchase a house. Remember that this is a HUGE responsibility; you have to make sure you are financially secure in all aspects and be prepared in situations like losing a job or relocation; in case of financial difficulties, this is not a good decision to make. And when we talk about big responsibilities, buying a house means you have to consider mortgage payments; you are obligated to make your mortgage payment to avoid loan default. If that happens, lenders will have the right to take possession of your properties. Not only that, but you also have to look for property taxes, bank origination fees, home inspection, and real estate transfer taxes. Those bond repayments that are not visible on the outside but it will come to you later as you proceed with the purchase.
Buying a house also means that you are responsible for repairs and maintenance which can be very expensive; plus there is a potential for financial loss – homeowners could also have the risk of depreciating assets once they decide to sell the property. Your decision may vary based on the market. Think of economic factors such as recession, or high-interest rates, or simply through a particular location becoming less desirable. Not only that, a homeowner has less mobility when relocating than a tenant who rents on a short-term basis. You also have to make sure you’ve chosen a place that is more convenient and desirable for you now and in the future.
WHAT ABOUT RENTING A HOUSE?
Renting also does come with its own good and bad side, just as there to owning a home.
If you aren’t clear on your financial goals yet, try to assess yourself in terms of location and more importantly financial stability. It always depends on you, your current situation and future plans. Consider renting if you still have other monetary goals or if you are still saving for a down payment. It could also be when you are still working on improving your credit score or if you are planning to move in the near future.
Renting a property surely has lower housing costs and there is short-term commitment than buying a house. Plus as a tenant, the landlord is responsible for all repair and maintenance costs and homeowner’s association dues which can add up to your savings. Also, your rent may cover utility costs and it allows more flexibility especially for people who are required to transfer to a new location for work purposes. It can be a desirable alternative to owning a house that lacks flexibility for relocating unless the house is sold.
There is a huge psychological freedom to renting. And we all know that buying a house is not for everyone. It always depends on your financial situation and preferred way of living.
ON THE OTHER HAND!
Renting a property can be discouraging on a lot of things. First, you walk away with nothing but only helping the landlord with their monthly mortgage! You don’t earn a return on your payments. Second, you cannot make changes or renovations to a rental property. There may be restrictions for some people with pets, or even changing the paint color. Third, there is no tax incentive which means you won’t be able to claim any deduction for mortgage interest and property taxes when filing tax returns. There are no fixed housing costs, your rent will most likely rise from year to year and there won’t even be a relief from your retirement because there is no equity, no homeownership, and it will certainly not help increase your credit score. For someone who’s planning to establish a household, renting an apartment or a home might not be the best way and is far from a permanent situation.
APPLYING FOR RENTER’S INSURANCE
However, if you have considered renting a property to be your best option for the meantime, then we have to be smart about it. Let’s look at getting a RENTER’S INSURANCE. This is the best and affordable way to protect yourself and your belongings.
WHAT ABOUT IT?
- Renter’s Insurance policy or HO4 is an inexpensive way that provides coverage for a policyholder’s belongings, liabilities and possibly living expenses in case of fire, theft or damage caused by negligence. Renter’s Insurance would cover those costs.
- Renter’s Insurance is available to persons renting or subletting a single-family home, apartment, duplex, condo, studio, loft or townhome.
- Renter’s Insurance TIP: Even if you don’t think you have a lot of “valuable” possessions, you still need renter’s insurance. Why? Because the items you have in your home are probably more valuable than you think, and renter’s insurance is a very expensive way to protect them.
- The policy protects against losses to the tenant's personal property within the rented property. In addition, a renter's insurance policy protects against losses resulting from liability claims, such as injuries occurring on the premises that are not due to a structural problem with the property (in this case, the owner's – not renter's – policy would apply).
- Renter’s Insurance offers three (3) types of protection:
- Coverage for personal possessions - Renter's insurance covers your personal property from loss due to theft, fire and other types of loss events.
- Liability protection - Renter's insurance provides liability protection against lawsuits for bodily injury or property damage done by the renter, their family members, and pets. A renter's policy should also include no-fault medical coverage as part of liability protection. This coverage allows someone who gets injured on your rented property to submit their medical bills directly to the insurance company, in lieu of a lawsuit.
- Additional living expenses (ALE) protection – this coverage provides financial protection against an insured disaster that makes it necessary to temporarily live somewhere else. The coverage will pay for hotel bills, temporary rentals, restaurant meals, and other living expenses while a rental home is being repaired or rebuilt.
HOW MUCH RENTER’S INSURANCE DO YOU NEED?
The easiest way to do this is to perform a home inventory and document all your possessions because rates and policies may vary. You can sign up for a generic renter’s insurance policy and make sure you get all the coverage that you need. Insurance is the best protection for your possessions and potential liability, and because renter’s insurance is so inexpensive, it is one of the best deals out there.
Either buying a house or renting a property, the most important factor to consider is your finances. Down payment, monthly mortgage, repair, and maintenance costs are the first few things to check before looking at buying your own house. Pair it with your preferred style of living then assess yourself if you are truly ready to jump into a bigger responsibility. Consider the pros and cons and be wiser in making your final decision.