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Renting vs. Owning

Renting vs. Owning. The Difference Between Renting and Owning a Home. Outline. Introduction Renting Advantages and disadvantages Costs of renting Owning Advantages and disadvantages Costs of owning Reasons for making a housing choice. Introduction.

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Renting vs. Owning

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  1. Renting vs. Owning The Difference Between Renting and Owning a Home

  2. Outline • Introduction • Renting • Advantages and disadvantages • Costs of renting • Owning • Advantages and disadvantages • Costs of owning • Reasons for making a housing choice

  3. Introduction • Housing is the largest personal expenditure • 30-40% 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.

  4. Renting • Rent • The cost of using someone else’s property • Renters are generally • People who choose not to own a home • People who cannot afford to own a home

  5. Renting continued • Landlord • Owner of the rental property • May perform management duties or hire a property manager • Duties of landlords • May collect rent and deposits, pay utility bills, complete repairs and maintenance, watch over the property, respond to tenant complaints, assign new tenants, etc.

  6. Property manager • may charge a fee to the landlord to perform the management tasks • Tenant • Person renting the apartment

  7. 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

  8. Lease and Sublease • Lease • 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. • Sublease • the tenant allows someone else to move in and take over rent payments • Subleasing may not be allowed • If subleasing is allowed, original tenant’s name is still on the lease and is responsible for payments

  9. Costs of Renting • Monthly rent • Security deposit • Utilities – electricity, water, garbage, etc. • Renter’s insurance

  10. Low moving 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 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 Advantages of Renting

  11. 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 Disadvantages of Renting

  12. Home Ownership • Home ownership - the buyer has purchased a housing unit as property • Goal of many Americans • A large financial decision • If it is not possible at this time, sound financial planning and savings can assist a person in planning for the benefits of home ownership later in life

  13. Purchasing a Home • 90% of buyers take out a mortgage • A home loan in which the real estate is the collateral • Down payment • Amount of money paid on the home at time of purchase • Typically 10 – 20% of the purchase price of the home • Maximum amount an individual should pay for a home • 2 ½ - 3 times their annual household income

  14. Costs of Ownership • Monthly mortgage payments (includes taxes and insurance) • Down payment • Closing costs • Utilities – electricity, water, garbage, etc. • Homeowner’s insurance • Real estate property taxes • Maintenance

  15. Build equity which can be borrowed against if necessary (home equity loan) 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) Advantages of Ownership

  16. Large down payment Move-in costs High 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 Disadvantages of Ownership

  17. 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

  18. Keep In Mind. . . People are always paying for a home. It’s just a matter of whether it is for themselves or their landlord.

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