For generations, owning a home was a sign of success — a trophy — however, that changed soon after the housing bubble burst in 2007, sparking The Recession. From that moment on, the façade of success and financial stability associated with owning a home was broken.
Trends in Renting
As of 2020, there are 43 million renters in the United States, making up about 30% of American households. This number has remained steady since 2014, but is part of a long-term upward swing since 1975.
Evidence suggests that renting is a popular trend amongst young people, as 49% of American renters are under 30-years-old. New Jersey alone has over 1 million people living in apartments. In addition, more people are staying and raising families in apartments than ever before.
Yet, let’s not jump to conclusions. Instead, let’s recognize the benefits of both renting and purchasing a home.
The Benefits of Renting
- Renting is more affordable in the short-term. While renters generally have to pay a security deposit equal to one month’s rent (which theoretically could be returned upon moving out), there is no down payment required. Therefore, renting allows you to allocate money for other expenses, or save.
- Renters are not held responsible for cleaning duties, maintenance costs or repair bills. Instead, the landlord is responsible. If an appliance stops working or there’s a water leak, you phone them — are they are required to fix the issue.
- Lower utility costs. Although rentals vary in size, they are typically smaller than homes, usually with a more compact and efficient floor plan. As a result, they cost less to heat and power — resulting in lower electricity bills.
- No real estate taxes. Property taxes can be a hefty burden for homeowners, especially those living in New Jersey. Luckily, there is no real estate taxes involved in renting.
- Access to amenities. Depending on your rental, you may have access to amenities, like an in-ground pool or fitness center, that would otherwise be a hefty expense. Many times, these amenities come standard with no additional charge or fees.
- Lower insurance costs. While renters are sometimes required — and most definitely encouraged — to open a renter’s insurance policy, the average cost of renter’s insurance is $180 per year, while the average homeowners insurance policy costs $1,211, according to a 2017 study by the Insurance Information Institute.
The Drawbacks of Renting
- You cannot build equity. While your rental will be your home while you inhabit it, it is not an asset you own.
- Rent is subject to change. While rent amounts are fixes for the span of the lease agreement, landlords can raise the rent with notice.
- You don’t have much control over your living space. If you own a home, you can make additions and remodel spaces whenever and wherever you want. When renting, you are bound by the rules and obligations in your lease agreement.
- Many rentals have a “No Pets” policy. If you are an animal lover, finding a place to rent that allows pets can be difficult.
- Evictions. While you may think it won’t happen to you, your landlord can evict you at any time, including if they put the property up for sale to make a profit if real estate values increase.
The Benefits of Buying
- Freedom! Whether it’s the freedom of redecorating and renovating, or the freedom to have pets, no one is stopping you from living however you want.
- You build equity. In simple terms, home equity is the difference between what you own on your mortgage and what your home is currently worth. Your home equity increases in two ways; One, as you pay down your mortgage and two, by increasing the value of your home through renovations, additions or remodels.
- You establish credit. Paying bills on time — such as the water bill, cable bill and electricity bill — helps establish good credit.
- There are tax benefits. Homeowners can deduct their mortgage interest payment.
- The feeling of stability and settlement. There is pride associated with owning a property.
- Privacy. While not all homes are built for privacy, there is still privacy from a landlord and unexpected maintenance.
The Drawbacks of Buying
- Owning a house requires responsibility. Homeowners pay for their own maintenance and utility bills. Whether you chose to hire a plumber or snake the drain yourself, you’re either losing money or time.
- Expenses vary. Month to month, home-related expenses vary. While you may not need to make any improvements one month, you may end up spending thousands on roofing the next.
- Less mobility. Owning a home makes it a lot harder to pick up and move. If you are a restless soul, home ownership might not be for you.
- A home is not a liquid asset. If you ever plan on selling your property, it’s not as quick of a process as you might expect.
- Property taxes. If you own a home, you are required to pay property taxes. Here’s the kicker: taxes increase over time.
Deciding whether to rent or buy depends on a variety of factors, including: whether you’re single or married with children, how much money you have on hand, the area you want to live, your job security, your property of interest, the school system your children will grow up in, savings goals and your willingness to take chances.
These are all questions that should be answered before making any serious financial decision. With the math behind renting and buying constantly changing, it’s most important to answer those questions first. After that, your course of action should be clear.
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