Renting vs. Owning

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© Family Economics & Financial Education – Revised March 2009 – Housing Unit – Renting vs. Owning a HomeFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Introduction

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

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

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

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© Family Economics & Financial Education – Revised March 2009 – Housing Unit – Renting vs. Owning a HomeFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Reasons for making a housing choice

Personal and financial goals Personal values, needs, and wants Amount of money available for housing costs Financial resources and readiness Credit history Real estate prices Location preference Expected length of stay in particular place

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© Family Economics & Financial Education – Revised March 2009 – Housing Unit – Renting vs. Owning a HomeFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Costs of renting

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

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© Family Economics & Financial Education – Revised March 2009 – Housing Unit – Renting vs. Owning a HomeFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Renting

A lease is a legal contract between the tenant and the landlord, specifying the responsibilities and rights of both parties.

– Identifies the rent amount, security deposit amount and specifications, payment for utility bills, late payment penalties, length of lease, eviction terms, etc.

– This is between the landlord and the tenant Landlord

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

Property manager - may charge a fee to the landlord to perform the management task

– Duties may include: – May collect rent and deposits, pay utility bills, complete repairs and maintenance, watch

over the property, respond to tenant complaints, assign new tenants, etc.

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© Family Economics & Financial Education – Revised March 2009 – Housing Unit – Renting vs. Owning a HomeFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Renting continued

Tenant (renter)– The person who rents the property.

Renters are generally– People who choose not to own a home.– People who cannot afford to own a home.

The tenant pays rent to the landlord which allows them to live in the rental property.

– Rent The cost of using someone else’s property.

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© Family Economics & Financial Education – Revised March 2009 – Housing Unit – Renting vs. Owning a HomeFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Moving into a rental

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

Security deposit– An advance payment to cover anything beyond normal wear

and tear on the unit.

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© Family Economics & Financial Education – Revised March 2009 – Housing Unit – Renting vs. Owning a HomeFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Advantages of renting

Low move-in costs Fixed monthly expenses Easy to move Location choices (may be close to

work or school) Less maintenance and repair work Fewer responsibilities May offer extra amenities such as a

tennis court or pool

Typically less expensive than home ownership

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

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

1.9.3.G1

© Family Economics & Financial Education – Revised March 2009 – Housing Unit – Renting vs. Owning a HomeFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Disadvantages of renting

Subject to terms of a lease Rent may change with little notice Less privacy and transient

neighbors. Restrictions on noise level, pets,

etc. Fewer opportunities to upgrade

apartment such as new carpet, paint, or wallpaper.

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

No tax deductions May lose rental if the property is

sold.

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© Family Economics & Financial Education – Revised March 2009 – Housing Unit – Renting vs. Owning a HomeFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Costs of ownership

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

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© Family Economics & Financial Education – Revised March 2009 – Housing Unit – Renting vs. Owning a HomeFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Home ownership

Home ownership - the buyer has purchased a housing unit as property

– Goal of many Americans– A large financial decision

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

Financial planning and savings can assist a person in planning for the benefits of home ownership later in life.

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© Family Economics & Financial Education – Revised March 2009 – Housing Unit – Renting vs. Owning a HomeFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Purchasing a home

90% of buyers take out a mortgage– A home loan in which the real estate is the collateral– Collateral is an item promised to the lender if the borrower does not

pay back the loan, usually the home. Down payment

– Amount of money paid on the home at time of purchase – Typically 10 – 20% of the purchase price of the home

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

1.9.3.G1

© Family Economics & Financial Education – Revised March 2009 – Housing Unit – Renting vs. Owning a HomeFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Advantages of ownership

Build equity which can be borrowed against if necessary

Pride of ownership Feel more comfortable and

have more privacy Stable mortgage payments More room and storage Improvement of buyer’s

credit rating

Income tax deductions for property taxes and mortgage interest

Potential for property to increase in value

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

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© Family Economics & Financial Education – Revised March 2009 – Housing Unit – Renting vs. Owning a HomeFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

Disadvantages of ownership

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

decrease in value Time, money, and energy

commitment Repair and maintenance

costs

Property taxes can raise substantially

Money is tied up in the home

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