by Dris M
The American dream of owning a home is no longer viable for many. In some cases, buying does not make sense if your finances may not support it and a down payment for a home may take you years to save.
Renting also affords one the flexibility to move if the need arises. You can often enjoy the lifestyle you want at a lower cost, especially in high-end real estate areas. For instance, buying property in Chicago can be very costly, but you can easily find affordable rental apartments.
Homeownership also comes with huge burdens such as homeowners association fees, maintenance, repairs, property taxes, etc.
Here are some of the reasons why you may want to rent instead of buy a home.
1. Down Payment
Raising a 20% deposit on a home is beyond reach for most typical wage earners. For example, according to Zillow, the median value for a home in Indianapolis is $227,543, compared to the median household income of just under $61,000 according to the Census website. Pangea's other markets of Chicago and Baltimore are similar, showing that homeownership is not a guaranteed investment, especially in the current economic times.
A tenant usually requires only a deposit or move-in fee, which is significantly less. Deposits are also often refundable as long as you haven't damaged the property.
2. Avoid Major Expenses
Homes come with costly expenses such as roof repairs, an appliance that may have stopped working, or lawn maintenance, among others. These expenses can be costly if they occur simultaneously. Neglecting the upkeep of your property could be devastating to the resale value.
Tenants living in rental apartments are not responsible for the maintenance and upkeep – the landlord is.
3. Access to Amenities
Apartment buildings often have shared amenities such as swimming pools, gyms, and more. As a tenant, you enjoy them without the extra cost. Homeowners, including condo owners, must dig deeper into their pockets to install such luxuries.
4. Fixed Rent Amount
Although fixed mortgages are also predictable every month, adjustable-rate mortgages are not. They are subject to change whenever there is a fluctuation in interest rates and changes in interest rates.
On the other hand, renters do not have to worry about rent fluctuations since it's usually a fixed affair in the lease agreement. Landlords and property managers are required to give notice of changes according to the law. As a result, it is easier to budget your finances if you are renting.
5. You Can Downsize Anytime
If the five-bedroom apartment or townhome you live in becomes too big, you may need to downsize. Maybe you are a retiree, and your budget can no longer support it. Or the kids have left the nest, and you are left with too much space. At the end of the lease, a tenant can move out and rent a smaller home.
But for a homeowner, things may not be so easy. During the great recession, it is why many homeowners were affected. They were stuck with underwater mortgages while others sold for less than the buying price.
6. Concerns About Decreasing Property Value
Tenants do not have to worry about fluctuating property value since they are not affected much. If you buy property, resale value is a huge factor. If it is down, a neighborhood may not attract buyers. But even in an affluent area, renting is a more desirable option if the rent is within your budget.
If you buy a property in a neighborhood with declining property value, you risk a loss should you decide to sell.
7. You Can Move Anytime
Picture a situation where you buy a home, but a few years later, you receive a job offer in a different part of the city far from where you live. You have two choices; take the offer and suffer the long commute or decline it. Often, you find such cases because people buy homes where they can afford them, mostly outside the cities. If you decide to sell, you may be stuck paying two mortgages which is a huge financial burden.
Renters do not face this problem. They can move around as much as possible, sometimes even in the middle of a lease if they can find a subletter and their landlord approves it. When you buy a home, you need to hold on to it for at least five years before selling it. That is if you want the price to increase.
8. Lower Utility Costs
Often rental properties such as apartments are smaller in size than most homes. Since landlords want to make the most out of the small space they have, apartments are usually compact and feature efficient floor plans making them more affordable to heat and power.
As a homeowner, you have to shoulder this burden. The utility cost for large homes can be pretty high, especially during extreme temperatures.
9. Insurance Costs
Renter's insurance was around $174 per year in 2019. Considering it covers almost all of your belongings, it is lower than homeowner's insurance which averaged $1272 annually the same year. Also, homeowner's association fees are not a tenant's responsibility. They can be a major expense.
10. Real Estate Taxes
Renters do not have to pay property taxes which can be a huge burden for homeowners. They differ from one area to the other and can be as high as thousands of dollars yearly in high-end areas. States base the calculation of real estate taxes on the value of the property and the location of the property.
If you buy a home in Indianapolis, you can expect to pay an average of $1,263 in property taxes. When you combine it with the mortgage and other expenses, it is out of reach of typical income earners, especially millennials and Gen Z with substantial student loans.
Owning a home is not as easy as it was some years ago. While many consider the 30-year mortgage their retirement investment, it is not as secure as it used to be. A mutual fund may be safer since property value keeps decreasing due to inflation. Renting a home takes all the hassles associated with home ownership from your hands. But ultimately, it depends on your financial situation and investment goals.
At Pangea, we have simplified the search for your next rental property through our search listing and online application. You can also contact us for help finding your next Chicago, Indianapolis, or Baltimore.