Renting vs. Renting vs. OwningOwning

EconomicsEconomics20152015

Housing is the largest personal Housing is the largest personal expenditure (About 1/3 of a person’s expenditure (About 1/3 of a person’s income.)income.)

Choosing where to live is based Choosing where to live is based upon a person’s goals, values, upon a person’s goals, values, needs, and wants.needs, and wants.

Places to live include: House, Places to live include: House, apartment, condo, mobile home, apartment, condo, mobile home, etc.etc.

IntroductionIntroduction

Personal and financial goalsPersonal and financial goals Personal values, needs, and wantsPersonal values, needs, and wants Amount of money available for housing Amount of money available for housing

costscosts Financial resources and readinessFinancial resources and readiness Credit historyCredit history Real estate pricesReal estate prices Location preferenceLocation preference Expected length of stay in particular Expected length of stay in particular

placeplace

Reasons for making a Reasons for making a housing choicehousing choice

Monthly rent Monthly rent Security depositSecurity deposit Utilities – electricity, water, garbage, etc.Utilities – electricity, water, garbage, etc. RenterRenter’’s insurance s insurance

Costs of rentingCosts of renting

A A leaselease is a legal contract between the is a legal contract between the tenant and the landlord, specifying the tenant and the landlord, specifying the responsibilities and rights of both parties.responsibilities and rights of both parties. Identifies the rent amount, security deposit Identifies the rent amount, security deposit

amount and specifications, payment for amount and specifications, payment for utility bills, late payment penalties, length of utility bills, late payment penalties, length of lease, eviction terms, etc. lease, eviction terms, etc.

TenantTenant (renter) (renter) LandlordLandlord

Owner of the rental property.Owner of the rental property. May perform management duties or hire a May perform management duties or hire a

property manager (someone he/she pays property manager (someone he/she pays to to perform the management task)perform the management task)

RentingRenting

Upon moving into a new place, people Upon moving into a new place, people are usually required to pay a security are usually required to pay a security deposit and sign a lease.deposit and sign a lease.

Security deposit - An advance payment to Security deposit - An advance payment to cover anything beyond normal wear and cover anything beyond normal wear and tear on the unit.tear on the unit.

Moving into a rentalMoving into a rental

Low move-in costsLow move-in costs Fixed monthly expensesFixed monthly expenses Easy to moveEasy to move Location choices (may be close to work or Location choices (may be close to work or

school)school) Less maintenance and repair workLess maintenance and repair work Fewer responsibilitiesFewer responsibilities May offer extra amenitiesMay offer extra amenities

Advantages Advantages of renting of renting

Typically less expensive Typically less expensive than home ownershipthan home ownership

May be able to save for May be able to save for other wants or needs if other wants or needs if renting a less expensive renting a less expensive apartmentapartment

Other expenses may be Other expenses may be included in rent payment included in rent payment such as electricity, water, such as electricity, water, sewer, and/or garbagesewer, and/or garbage

Subject to terms of a leaseSubject to terms of a lease Rent may change with little noticeRent may change with little notice Less privacy and transient neighbors.Less privacy and transient neighbors. Restrictions on noise level, pets, etc. Restrictions on noise level, pets, etc. Fewer opportunities to upgrade apartment Fewer opportunities to upgrade apartment

such as new carpet, paint, or wallpaper.such as new carpet, paint, or wallpaper.

Disadvantages Disadvantages of renting of renting

When leaving a When leaving a property, no equity property, no equity is returned as it is returned as it would be if selling a would be if selling a home.home.

No tax deductionsNo tax deductions May lose rental if May lose rental if

the property is the property is sold.sold.

Monthly mortgage payments Monthly mortgage payments Down payment (one time cost)Down payment (one time cost) Closing costs (one time cost)Closing costs (one time cost) Utilities – electricity, water, garbage, etc.Utilities – electricity, water, garbage, etc. HomeownerHomeowner’’s insurances insurance Real estate property taxesReal estate property taxes Maintenance Maintenance

Costs of ownershipCosts of ownership

Owning a home is an investment because if a Owning a home is an investment because if a person sells a home for more than what it was person sells a home for more than what it was bought for, the person makes money. This is bought for, the person makes money. This is called called equityequity..

Home ownershipHome ownership

90% of buyers take out a mortgage (A 90% of buyers take out a mortgage (A home loan in which the real estate is home loan in which the real estate is the collateral)the collateral) *Collateral*Collateral is an item promised to the lender is an item promised to the lender

if the borrower does not pay back the loan, if the borrower does not pay back the loan, usually the home.usually the home.

Recommended purchase price amount Recommended purchase price amount an individual should pay for a homean individual should pay for a home 2 ½ times their annual household 2 ½ times their annual household

incomeincome

Purchasing a homePurchasing a home

Build equity which can be borrowed Build equity which can be borrowed against if necessaryagainst if necessary

Pride of ownershipPride of ownership Feel more comfortable and have Feel more comfortable and have

more privacymore privacy Stable mortgage paymentsStable mortgage payments More room and storageMore room and storage Improvement of buyer’s credit Improvement of buyer’s credit

ratingrating

Advantages Advantages of ownership of ownership

Income tax Income tax deductions for deductions for property taxes and property taxes and mortgage interestmortgage interest

Potential for property Potential for property to increase in valueto increase in value

Free to make home Free to make home improvements and improvements and have pets (items have pets (items typically not allowed typically not allowed in rentals)in rentals)

Large down paymentLarge down payment Move-in costsMove-in costs Insurance costsInsurance costs Possible for property to Possible for property to

decrease in valuedecrease in value Time, money, and energy Time, money, and energy

commitmentcommitment Repair and maintenance costsRepair and maintenance costs

Disadvantages Disadvantages of ownership of ownership

Property taxes can Property taxes can raise substantiallyraise substantially

Money is tied up in Money is tied up in the homethe home

May take several May take several months to sell a months to sell a home if trying to home if trying to relocaterelocate

People are always People are always paying paying

for a home. It’s just a for a home. It’s just a matter of whether it is matter of whether it is

for themselves or for themselves or their landlord.their landlord.

Keep In mind. . .Keep In mind. . .