Choosing the best apartment rental is a big deal, but you've always wondered if you should purchase your own home instead. Your homeowner friends always tell you that it's about time you bought your own place. The idea sounds appealing, but it's not always what it's cracked up to be. No doubt, there are considerations to factor in, and a lot of it is on the financial end.
It's a big challenge to figure out what your next living situation will look like and whether or not that involves renting or buying. So much of that decision is based on your income, where you work, and what your short-term plans look like. There are upsides and downsides to these decisions, and there's a lot to consider. Here are the top five pros and cons of renting (vs. buying), and we help you narrow down your decision.
Renting is Generally Cheaper Than Buying: When it comes to renting, the overall cost tends to be more affordable than buying a home or condominium. You have to crunch the numbers first, though. There's a lot to consider aside from just the monthly rent or monthly mortgage payment. The average rental is actually cheaper than the average monthly mortgage, which means less money out of pocket. Plus, if you fail to pay your mortgage, your lender can foreclose on you, and you lose all equity.
You are Only Committed for the Short-Term: Usually, rental leases are for 12 months at a time. Sure, you can get a shorter term (even month-to-month) or a longer term lease, but one year is the standard. So, even if it turns out you don't like your rental, you don't have to stay forever, and there's no selling you have to worry about. You just find a new rental and move out, or you can try to break your lease, and you're probably just out your security deposit. Plus, if you're not sure if your current job will work out or if you're moving to a new city to test things out, renting is definitely the way to go.
Your Landlord Handles Maintenance and Repairs: If you own your own place, whether it's a condo, townhouse, or single-family home, all of the hassle and costs of repairs and maintenance are on you. Sure, there's homeowners insurance, but it by no means covers everything. If your toilet goes belly up in your rental, a simple phone call should get your landlord to handle matters. If an appliance in your rental dies, say a fridge, then it's up to your landlord to repair or replace it, and they can't charge you for it unless you intentionally abused or broke it. There's more savings in your pocket.
You Don't Have to Pay Real Estate Taxes: Depending on where you live, if you buy a home or condo, you can end up paying many thousands of dollars every year in real estate taxes. So, if you're monthly mortgage is a couple of thousand dollars, you have to factor in extra money every month to pay real estate taxes. If you fail to pay those taxes, the penalties can be crippling. Rentals don't require real estate tax payments since you don't own your home. That's on the property owner, not the renter.
You May Get Free Premium Amenities: Sometimes, renters have access to fitness centers, swimming pools, and/or rooftop decks. While this isn't always the case for renters, it's likely you would have to pay extra for these when buying. Rather than spending money to put space-killing exercise equipment in your rental, you can simply use the rental facilities that are accessible to tenants. It's a win-win, really.
You're Not Building Equity: If you rent, your monthly payment doesn't really go towards anything except your ability to live in your rental apartment or home. When you buy your own place, your mortgage payments help build equity. The more you pay down, the more of the home you own until you get the full title and have total ownership. Renting means you get none of that, unfortunately. Paying off your monthly mortgage on time is also good for building credit, whereas renting really doesn't help in that regard.
You Get No Tax Benefits: If you're a renter, there are zero tax benefits that help you reduce your taxable income. Uncle Sam won't let you deduct anything if you don't actually have equity or own the property in which you reside. If you're a homeowner, you can deduct a number of things including the interest you pay on your mortgage, your mortgage insurance, and even some state and local property taxes. The long and short of it is that if you rent, none of these benefits will come your way.
Your Landlord Can Raise Your Rent: You read it right. Let's say you pay $1,200 a month for a two-bedroom apartment in the suburbs. You've signed the lease stipulating the rental amount, but your landlord decides to raise your rent six months in. Is that likely? Probably not, but he or she has a legal right to do so, especially in places like Illinois where there's no rent control law. There goes your budget, and it may even force you to leave early if you can't afford it, and then you probably lose your security deposit in the process.
You Can Only Make Changes if Your Get Landlord Approval: If you're a renter, and you want to paint the bedrooms a different color, you might not get to do it unless the landlord approves. So, what you see is kinda what you get. That means you can't do what home buyers get to do, which is make whatever changes they want as long as they're up to city code. Sure, you can decorate your place to a certain extent, but installing wall shelves, changing the kitchen counters, or other such projects likely won't happen because your landlord probably won't approve them.
You Can Be Evicted: While most states have a process for eviction, your landlord can initiate that process at any time. It can be for a lease violation or because they plan on selling the property due to an increase in value. It can take from 7 to 30 days in order for this to occur, and that means you're stuck with having to find another place to live. The lack of stability means the decision to leave might not be yours. It's something to consider that homeowners don't have to deal with.