The cost of living is one of our largest expenses! So why pay more than you have too? Many people are paying more for rent than what they would if they owned the same house that they lived in. I know a landlord who had the same tenant for decades and said they could own that house now with all of the rent that they had paid.
What is renting good for?
- Living somewhere for under a year
-No maintenance to worry about
Negatives of renting:
-You are most likely paying more than the mortgage + taxes + insurance would be
-You cannot make the house your own and redo a kitchen or bathroom if you would like to.
-If you want a pet it can drastically limit where you can live.
-You have a landlord some can be great some can be really pieces of work. So this one depends on your situation.
-You are paying someone else's mortgage
Positives of buying:
- You have an asset that will be paid off one day.
-You are gaining equity (the % of property you own) every time you pay your mortgage.
-You can choose to rent out the rooms and live rent free.
-If you want a pet that choice is yours.
-The home is yours to make your own, do projects, redo a kitchen or bathroom.
-Get to deduct the interest on your mortgage from your taxes!
-The home will appreciate (go up in value) as you own it (based off Philadelphia appreciation values).
-If you choose to move you can keep it as a rental and have an extra income stream.
-If you rent it out it could be part of your income when retired.
-If you choose to move you can sell and hopefully you did some work while you lived there or it appreciated. Now you can collect a nice check for living somewhere instead of renting.
Negatives of buying:
-Higher barrier to entry - need to put more money down
-You are the one responsible for maintenance
High barrier to entry - by using an FHA Loan putting 3.5% down and a seller's asset the barrier is not that much higher.
Maintenance - I have done most of the maintenance myself except fixing appliances. Doing the maintenance on most things can be fun projects and you gain a new skill. On appliances you really need a technician. These can be $250.00 costs to fix it. Or I paid $140 for someone to diagnose a problem with a fridge and found it was better just to replace it. I had to spend another $600.00 on that fridge. So the maintenance can be expensive and hopefully with the monthly payment money saved from buying instead of renting that will be saved as reserves.
More responsibility - The only area I have found owning a home to be more responsibility is in regard to maintenance. But in the places I have rented it usually resulted in me calling the landlord and waiting for him to send someone out. Then I usually fixed it. Now I just call a contractor. Same process different person.
Real world scenario:
Buyer Bob decides he is going to buy a property on the same street where Renter Rick is going to rent (I know the names are corny but it helps me from mixing the two up.)
(These numbers are based off real market properties. I have worked with buyers on this street as well as rented a home on this street).
I almost forgot to mention the rent difference over 5 years!
Bob spent 1350/mo while Rick spent 1750/mo.
(400/mo x 12 months) x 5 years = That is 24,000 over 5 years! There is Bob's renovation money he spent and then some.
If Bob chose to house hack and rent the other two rooms for 500 each. He paid 350/mo.
1750 - 350 = 1400
(1400 x 12) x 5 = 84,000 (before taxes).
The point is that on the left there is a lot of options Bob can choose from. He can choose to live alone or with roommates and reduce his rent (house hacking).
When Bob moves he can sell or rent!
Then the profit from that sale or rent gives him more options.
Rick has the option of paying rent that's it.
I know it seems almost incredulous that this is the gap of renting vs buying but it is real. Buying gives you options which usually people think it ties you down to one place. These are small differences in how you choose to lead your day to day life that can lead to incredible results.
720 Fayette St, Conshohocken, PA 19428