Image by GreyArea via FlickrThe debate over Renting vs. Home Ownership goes on. The common advice is "Don't waste your money on rent, invest in a House." With the many costs of home ownership, renting is starting to look a lot better. Lets start with the down payment. Renters don't have to pay that big up front expense. The home owner has the pleasure to also have a nice mortgage payment to make every month for thirty years. That's quite a long lease. Plus if home owners don't pay they get foreclosed on, renters are just evicted.Property Taxes
These are the taxes paid to your local and state governments for salaries and services of government. It's a never ending expense that just goes up as the value of your home appreciates. They vary according to region. Looking at the property taxes for the home is important when your purchasing. Sometimes living in a different county can sometimes lower your taxes because of differing assessments.
Home Maintenance.
Renters are lucky because when the water heater breaks they just have to call their friendly landlord to fix it free. The home owner has to go through the expense of buying and paying to install a new one. Maintenance is a big factor in home ownership. The rule of thumb is to set aside 1% of your homes value for yearly repairs. On a $200,000 home, you will need $2,000 per year. I believe this is a low figure. I would estimate that 4% is the necessary amount needed for home maintenance, at least $8,000 per year for a $200,000 home.
Mortgage Interest.
Again renters win. Over the duration of a 30 year $200,000 mortgage at 5%, the home owner gets the privilege of paying over $200,000 in interest. The amount of interest depends on your interest rate and your duration of the loan. The benefit of paying interest is home owners receive a mortgage interest deduction on their tax return to ease the pain a little.
Homeowners Insurance.
Renters don't have to pay this expense, but they should carry renters insurance. Renters insurance covers the contents of the apartment. Home Insurance covers the structure itself and sometimes the mortgage payoff amount. If your home is lost to fire, flood or other disaster home owners insurance comes in to save the day and puts everything right again. Homeowners should yearly check their policies to see if they have replacement cost on their insurance, not just current value. The average insurance is $950. But if your living in a hurricane, tornado, or flood plane your insurance can be substantially higher.
Real Estate and Legal Fees.
When you rent you just leave a deposit and first months rent and you then get the keys. A home owner has to pay real estate agent fees, lawyer fees, title transfer fees, and closing costs when purchasing and selling a home, renters don't have any of these expenses.
It's understood that landlords pass on these fees to their tenants who rent. Yet landlords get the profit that comes when a home is sold. Even though a mortgage payment can be lower than a rental amount, many other things go into the finances of home ownership.
Home Maintenance.
Renters are lucky because when the water heater breaks they just have to call their friendly landlord to fix it free. The home owner has to go through the expense of buying and paying to install a new one. Maintenance is a big factor in home ownership. The rule of thumb is to set aside 1% of your homes value for yearly repairs. On a $200,000 home, you will need $2,000 per year. I believe this is a low figure. I would estimate that 4% is the necessary amount needed for home maintenance, at least $8,000 per year for a $200,000 home.
Mortgage Interest.
Again renters win. Over the duration of a 30 year $200,000 mortgage at 5%, the home owner gets the privilege of paying over $200,000 in interest. The amount of interest depends on your interest rate and your duration of the loan. The benefit of paying interest is home owners receive a mortgage interest deduction on their tax return to ease the pain a little.
Homeowners Insurance.
Renters don't have to pay this expense, but they should carry renters insurance. Renters insurance covers the contents of the apartment. Home Insurance covers the structure itself and sometimes the mortgage payoff amount. If your home is lost to fire, flood or other disaster home owners insurance comes in to save the day and puts everything right again. Homeowners should yearly check their policies to see if they have replacement cost on their insurance, not just current value. The average insurance is $950. But if your living in a hurricane, tornado, or flood plane your insurance can be substantially higher.
Real Estate and Legal Fees.
When you rent you just leave a deposit and first months rent and you then get the keys. A home owner has to pay real estate agent fees, lawyer fees, title transfer fees, and closing costs when purchasing and selling a home, renters don't have any of these expenses.
It's understood that landlords pass on these fees to their tenants who rent. Yet landlords get the profit that comes when a home is sold. Even though a mortgage payment can be lower than a rental amount, many other things go into the finances of home ownership.
Interesting post. I've thought about the rent vs buy decision quite a bit. For me the biggest consideration is the amount of scarce time that is devoted to homeownership tasks. When you take the total number of hours available in a month (720), take off sleep time (240), work/commute time (220)and mealtime (60), your left with about 200 hours of "free" time available to do things you like. I figure homeownership tasks take about an hour per day, or 155 of the net time available...not worth it to me!
ReplyDeleteIn the old days owning a house was not as expensive as it is now. Today with high cost of maintenance, taxes, and the cost of purchasing a house is through the roof. It was a no brainer before but today you need to think it through.
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