Purchasing a property is considered an essential life goal. Yet, many American millennials are behind on homeownership. While most people agree that buying a home is a wise investment, others prefer the low financial commitment of a rental. With a variety of reasons supporting either choice, it can be hard to decide on buying or renting a real estate property. It helps to find reputable rental properties in chicago to ensure you are getting good prices and amenities.
Let us examine the pros and cons of buying and renting a home.
Lump-Sum Payments
Saving up a down payment to buy a property is a huge task for many first-time home buyers. Many lenders require a minimum of 20 percent of the value of the property, which can be a large amount. In contrast, renters typically only need to furnish a security deposit of one or two months of rental that will be returned at the end of the lease. Thankfully, many mortgages now accept down payments as low as zero percent, allowing people with less savings to buy homes.
Building Equity
The greatest criticism of renting is that your monthly payments go to your landlord instead of your future. Over months or years, you spend tens of thousands of dollars on rent that probably end up paying for somebody else’s mortgage. So why not pay for your own mortgage instead? Just like with a rental property, you have to pay monthly costs for a mortgage. But each payment goes to building equity in ownership of your property.
Furthermore, there is a good possibility that your home value will appreciate, increasing your equity. Property ownership adds to your net worth whereas renting does not. When you need it, your property can be used to secure a line of credit or a loan. Note that there may be certain unforeseen circumstances in which the value of a home can decline and you may end up paying more for your home than it is worth.
Extra Costs
Although you can adjust your mortgage payments to be lower than the average monthly rental, the miscellaneous expenses of a property owner can add up. These expenses may include property taxes, homeowners insurance, private mortgage insurance, and homeowner dues.
On the contrary, renters have a fixed monthly cost and can leave the burden of these expenses to the landlord or property manager. On the same token, renters can face many extraneous costs as well. Some landlords require renters to pay homeowner dues and facility maintenance such as water and sewer service, trash collection, and security fees. Renters are also vulnerable to rent increases each time their lease runs out. Even rent-controlled properties can face rental increases, albeit at a less dramatic rate. When your rent becomes too high, you may be forced to find another home.
Repairs And Renovations
Homeowners are responsible for all the repairs and maintenance on their property. This can be costly, especially if you are faced with unexpected and urgent house repairs that require you to call in the professionals. That said, you can defray some of these costs by purchasing comprehensive home insurance. If you renovate or upgrade your home, certain renovations can add comfort and significant value to your home equity.
When you rent, the repairs and maintenance are generally taken care of by your landlord. Unfortunately, they may not be timely or performed to your specifications. Your landlord may also dispute that you caused the damage and ask that you pay for the repairs. Renters generally do not have the liberty to renovate or make changes to their living space. Some rental properties do not even allow renters to use nails to hang up their pictures.
Relocation
If you are unsure about where you want to live in the future, renting will allow you to have the flexibility of moving at the end of the lease. You could even break your lease and pay the penalty if you need to relocate in a hurry. In certain cases, landlords can be the ones who terminate the lease. A landlord can legally terminate your lease agreement and evict you if they have a valid reason such as a violation of the rental agreement.
For homeowners, relocation is a little more complicated. You are protected from the risk of eviction but have to ensure that you do not default on your mortgage. If you want to move, you will have to put your home up for sale or rent. This can create fees like capital gains tax, closing costs, real estate agent commissions, or property management costs. However, you will still benefit from the value of your home equity.
The Bottom Line On Buying vs Renting Real Estate
Whether buying or renting a home is better depends entirely on your circumstances and preferences. Buying a home is an excellent long-term investment and you will have the freedom and stability to personalize your home as you wish. Meanwhile, renting houses offers less responsibility and more flexibility to relocate. Whichever you choose, it is important to be realistic about what you can afford. You can always reevaluate your plans as your situation changes.
