Renting vs. Buying: Part 2 – Advantages and Disadvantages of Renting

In today’s market, renting an apartment or house can be a wise decision in certain circumstances, but typically is not a good long term solution.  See Renting vs. Buying: Part 1-Which Is Better? to help determine which may be the better option for you.

Benefits of Renting

  • Maintenance is included in the cost of rent. If the stove stops working, you are not responsible for fixing the stove or for purchasing a new one.
  • Yard Work is included in the cost of rent.  While this is also the case in many condos and townhomes with HOA dues, it is generally not the case with houses.
  • Amenities are often abundant in apartment complexes.  Gyms, pools, meeting rooms, coffee bars, etc. are usually included in the cost of rent.  While some neighborhood communities may also have these, they tend to come at a price.
  • Utility Bills tend to be lower in apartments due to the smaller size of each unit.
  • Moving is quick and easy.  No need to put a home on the market and wait for it to sell.  A 30-60 day notice is all that is usually required in order to vacate the property and move elsewhere.
  • No Down Payment is required when renting.  Though a security deposit, pet deposit, and one or two month’s rent may be required upfront, this cost is usually significantly less than a down payment.

Disadvantages of Renting

  • Noise may be an issue in apartment complexes because you often have neighbors on either side of you, above you, and below you.
  • Rent Increases often occur annually.  Short term leases and month to month leases are generally considerably more expensive than a one year lease.  Want to stay for three months after your lease expires?  That could be billed at the much higher monthly rate.
  • Parking may be a daily struggle.  With so many people living in such a small area, a convenient parking spot may be hard to find.
  • Rules about what colors you can paint (if any), how you can mount a TV, how you can hang drapes, which pets you can keep (often for a fee), where you can park, when you can pick up packages from the office, etc.
  • Equity is not built via rent payments.  In other words, at the end of the day, your payments are not helping you own anything that can be sold later.
  • Landlords can be hit or miss.  An apartment complex or management company can be researched, whereas many individual landlords cannot.  They may live out of state, may have hundreds of properties they manage, or may be easy and responsive.  It’s hard to know ahead of time.

There are also advantages and disadvantages to purchasing a home.  See Renting vs. Buying: Part 3 – Advantages and Disadvantages of Buying

Renting vs. Buying: Part 1 – Which is better?

It’s time to move.  Do you rent or do you buy?  This age-old dilemma faces professionals relocating for a job, empty-nesters that are downsizing, young people moving out of the family home, newlyweds starting a life together, and growing families in need of more space.

How long do you expect to live in your new residence?

The longer you plan to stay, the more sense it makes to buy a home.  Generally, if you plan to stay more than five years, you should consider buying.

While this may be a good rule for most situations, there are instances where even a one year home purchase makes sense.  For example, in purchasing a home that needs cosmetic updating, you’ve given yourself the possibility to build equity in your home faster than simple appreciation.  By this same token, buying a new construction home, living in it for five years, then selling may not be a good decision.

If you’ll be moving within the first few years and are not interested in building sweat equity in your home, renting may be the best move for you.

The current stability of your life is another thing to consider.  Is your job stable?  Are you expecting that you’ll continue to earn raises and bonuses?  Will you be getting married, having children, or relocating to be with aging parents in the near future?

How do the monthly costs compare?

There are hidden costs in both buying and renting.

In buying, you need to consider property taxes, insurance, HOA fees, utility costs, and building a slush fund for unexpected repairs (dishwasher, stove, water heater, HVAC, refrigerator, etc).

In renting, you need to consider annual rent hikes, moving costs if you plan on moving often, pet fees, and security deposits.

Do you have savings for a down payment?

While it’s true that you do not need a 20% down payment, you will typically need money for a down payment (may be as low as 3.5% of the purchase price), closing costs, and moving expenses.

Renting vs. Buying: Part 2 – Advantages and Disadvantages of Renting

Renting vs. Buying: Part 3 – Advantages and Disadvantages of Buying