Renting vs Owning 2020

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I am absolutely in love with learning and sharing all things real estate. I’m an agent for Jacaranda Real Estate In Harare, Zimbabwe. This blog will be the ultimate resource for all things real estate so subscribe and stay tuned.

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It’s a story of the rivalry that has lasted the ages, a greater feud than the Montagues vs Capulets, burgers vs hot-dogs and  IOS vs Android all put together. Renting vs Owning; I am here to give the definitive case closed answer (in my personal researched opinion).

To not waste any of your time, here are the answers straight off the bat.

Yes, Renting is better than owning and Yes, Owning is better than renting. And it all depends on the specific circumstances you find yourself in; as I’ll further explain below.

To begin with, let’s take a close critical look at both sides of the coin.

An In-depth Analysis of Renting And Owning.

Renting vs Owning (Table)

Benefits For Renting

Benefits For Owning

Cheaper Insurance.By the end of it, it’s yours and for yours.
Renovations, repairs, and maintenance aren’t a “you” problem.It’s stable. (mortgages don’t change)
Your flexibility to move is unmatched.it can appreciate and lead to great returns.
Access to amenities.Adds to your net worth.
You can quickly adapt to your situation.You have privacy.
No property tax.It’s yours to customize and build on.
More Income Control.Improves your credit rating.
Security deposits are way better than down payments.It can become a source of income.
Market disasters don’t hit you as hard.It’s an incredible feat.

What is Renting (letting or hiring)?

Use of accommodation agreement whereby a landlord (property owner) provides access and use of a property to a tenant (property renter) for a specific duration of time as stated in their contract, in return for periodic rental payments.

What are the benefits of renting vs owning disadvantages?

1. Cheaper Insurance.

In a tenant situation, you are not held liable for providing rent for the building. As a tenant, your rental payments are charged appropriately; to only cover what is inside the property.

2. Renovations, repairs, and property maintenance aren’t a “you” problem.

 The details of this are specific to each rental agreement, but on average; unless in the event of the tenant causing direct damage to the property – the landlord handles the cost.

This covers but is not limited to renovations such as painting, fixing cracks, retiling as well as property remodels and the introduction of amenities on the property.

3. Your flexibility to move is unmatched.

The restrictions to moving are immensely fewer in the case of a rental situation. Both the cost of moving concerning not having to deal with large down payments and the convenience of moving concerning not having to deal with mortgage lenders is faster and easier.   

4. Access to amenities.

Renting often provides tenants with passive access to otherwise costly amenities such as swimming pools, property security, well-maintained garden areas, and gyms.

For a homeowner to have access to these same amenities they would have to have invested enormous setup costs as well as long-lasting maintenance costs.

5. You can quickly adapt to your situation.

You just got a massive raise at your job, you won the lottery or you inherited a fortune from a long lost aunt you never knew; upgrade up and rent a property in the finest neighborhood in your city.

You or a family member gets injured and the hospital fees cost an arm and a leg, the economy grinds to a screeching halt and you lose your job or you want to sacrifice for a bit to have an incredible end of year holiday in the Bahamas. Upgrade down and rent a single bedroom apartment somewhere quaint.

I don’t know what’s more likely to happen in your situation but the fact of the matter remains clear. You are not fixed to long contracts, the huge potential of financial loss and a multitude of debtors when you are renting.

6. No property tax.

Regardless of the size, neighborhood or type of property, you decide to rent on; your obligation to property tax is the same in all situations, a big zero.

7. More Income Control.

When you’re renting a property, your costs are far more stable regarding what you are aware you need to budget and pay monthly.

Some rental properties include fixed fees for certain utilities such as internet, electricity, and water; to which you are only charged a rate when you go beyond your allocated amount.

As such, the tenant is never at risk of additional unplanned property costs such as if the geyser dies, a pipe burst or a tree falls through a room.

Because of this, the tenant has more control over their finances and disposable income.

8. Security deposits are way better than down payments.

When it comes to comparing the financial cost difference between renting a property and owning it; they’re far too many considerations that need to be made on a case by case basis to give a definitive answer that X is more expensive than Y.

An undeniable financial fact between the two is this. A rental security deposit to gain access to a rental property will always be compellingly less than an ownership down payment for a similar property.  

Mortgage down payments can range to be as high as 20% the cost of the property for buyers. This is a direct hit on a buyer’s disposable income that could have been used for emergencies, investments and personal responsibilities.

9. Market disasters never hit you as hard.

The real estate market is naturally very slow in reacting to real-world situations. But when the market does react, it can often leave individuals in less than favorable situations and none are hurt more than this than property buyers.

If the market takes a huge hit and the value of your property crashes down, you are still tied and obligated to pay your mortgage payments at the interest rate based on the value of the property when you signed the contract. This effectively means you can be tied to pay disproportionately high rates for a property a fraction of the value.

What is Home Owning?

A transfer of ownership agreement between a property owner (seller) and property buyer whereby the transaction will commonly involve the buyer taking out a mortgage from a lender to finance the purchase. The mortgage is paid back in installments and once all payments are made; the property is completely owned by the new owner.

What are the benefits of owning vs renting disadvantages?

1. By the end of it, it’s yours and for yours.

No matter how long you rent a property for, it will never be truly yours; this means you are always living within a boundary of risk for whether or not you can continue to live on that property tomorrow or the day after that.

Tenants may decide to not renew your contract or they may give you notice of evacuation if they decide to use the property for some other purposes.

This is however not the case when it comes to buying a property. Contractually, you do not completely own a house when you buy it using a mortgage; you own equity in the property.

And as long as you continue to make your mortgage payments, you know you are progressing towards more ownership of your property; that will inevitably lead to complete ownership and equity of your home.

This means the property is yours to do with as you please and to pass on to your family.

2. Adds to your net worth.

From the moment you place the down payment on a property to each subsequent mortgage payment after that; you adding a positive-sum to your official net-worth.

One of the most influential benefits of high net worth is its ability to help you secure loans. Income reports are more volatile considerations than asset reports.

This is however not the case with rental payments, each rental payment you make regardless of how long you’ve been making them; does not influence your net-worth and is only an expense that reduces your available income.

3. When owned property appreciates, it leads to great returns.

It is undeniable the real estate market has experienced some destructive crashes in the past, though it is equally undeniable that the market has more often seen year by year growth than decline.

In the same way that your mortgage payments are fixed so that if the market drops and your property loses value; you still pay interest on the original value, If the market rises and your property rises in value; you still pay interest on the original value.

This is property gain and can result in buyers getting a comparable discount each year for simply buying the house.

4. It’s stable.

For better or for worse, the rates and interest of mortgage payments are fixed up until the last payment. Where this can lead to a relative shift in the favourability of your position if the market improves or worsens, it will not by strict payment terms; change the amount have to pay.

Rental payments, on the other hand, can change multiple times over the year for the better or the worse. Contracts can have contingencies in them that allow landlords to amend the tenancy fee with as little as a months’ notice.

This adds a level of uncertainty in renting concerning budgeting and mapping out your disposable income whereas in the case of buying a home you know the amounts are fixed.

5. You have absolute privacy.

When you purchase a home, it is your sanctum where you have control and awareness of who is and can enter your property legally.

In the case of renting a property, you are to an extent bound to the mercy of the landlord. Where the cost of most renovations or repairs is tied to the landlord, the convenience of when they’ll be done is also tied to the landlord.

It is not uncommon to have strangers you have not vetted wandering around the property under the instructions of the landlord.  

6. It’s yours to customize and build on as you please.

When you buy a home, you have full jurisdiction to do anything and everything (legal) to the property without the needed permission and contract signing of anyone (except possibly your partner).

This is not the case in the environment of the tenancy. A tenant is not able to influence anything long-lasting and certain cases anything temporary without the permission of the landlord.

This extends to painting the property, making repairs through your channels, drilling holes to hang up photos and whether or not you can have specific pets and where they can and cannot be situated.

Tenants do have the benefit of having most property costs handled for them but they are also slaves to when and who carries out the repairs. If your landlord hires someone incompetent; all you can do is go through the procedure of requesting repairs again.

7. It can become a source of income.

What is a landlord if not just a property owner who’s just letting someone live in their home for a fee. Owning a property gives you powerful avenues to increase your income and leverage your financial standpoint.

You don’t always have to rent out full properties is entirely possible and favorable to rent out individual empty rooms in your property; this could potentially earn you enough income to cover your mortgage thereby essentially allowing you to “house hack” and purchase your property for a discount or for free.

Another avenue where owning your property can be financially beneficial to you is by working from home and filing for tax the tax deductions of using your home as office space.

8. Improves your credit rating.

Mortgage payments, unlike rental payments, are expenses that widely accept to be paid by way of credit it card.

Not only does this give you a buffer to better control your budget and leverage your monthly spending but as you continually and consistently pay off your credit card debt, you are bolstering your credit rating.

This allows you to qualify for longer and larger loans at lower interest rates down the line as you are regarded as a reliable individual to lend money to.

9. It’s an incredible feat.

Last but not least, the sense of accomplishment that you will have when you purchase your first home and make the final mortgage payment is nothing to be scoffed at.

In 2019, Bank Of America surveyed homeowners and buyers which stated the following:

  • 93% of homeowners felt happier buying a home than renting one.
  • 83% of homeowners said they could not get back to renting after buying.
  • 79% stated that owning a homemade them a better person
  • 67% stated that owning a home improved their relationship with family and loved ones

*study found (HERE).

 

What is better to do in 2020? Rent or Own?

Regardless of the state of recent events, deciding whether or not to buy a house this year requires no more dedicated reasoning than if you were buying a property last year or probably for next year as well

Below is a list of considerations for both buying and renting your home and should be read with consideration to the above advantages and disadvantages of both environments

When Should You Buy or Rent A House (Table)

When You Should Rent A Home:

When You Should Buy A Home:

You aren’t sure if this is where you can settle.You want to build equity.  
You aren’t certain you can consistently handle the cost of owning a house.You want to secure something for yourself and your ties.  
Your job and your lifestyle are nomadic.You want it and you can afford it.  
You don’t want to own a home.   

This is when and why you should rent instead of own

1. You aren’t sure if this is where you can settle.

A home is an undeniably great accomplishment which is as much an avenue of freedom as it is an area of consistent responsibility. After buying the home comes maintaining the home.

You cannot be away from your property for long periods without organizing a way for everything to be kept in order and shape.

As such, if you aren’t ready to either settle and live in your home for long periods or to organize someone to watch over and maintain it; renting is the better situation for you.

2. You aren’t certain you can consistently handle the cost of owning a house.

In the worst-case scenario of you being unable to make pay your obliged debts, the consequences can be dire but none as dire as what happens if you fail to pay your mortgage consistently.

In the case of renting out, If you realize that due circumstance, you will be unable to afford where you stay. The situation will likely end with you having to upgrade down to a more affordable property and losing your deposit.

When you fail to repeatedly make your mortgage payments, the situation could end in a disaster whereby you not only lose the property but also the large down payment you would have made on the property and could potentially be taken to court where your assets would have to be sold as collateral.

3. Your job and your lifestyle are nomadic.

If you work in a field whereby you are unlikely to be in the same place for extended periods as well as not having ties to a fixed location such as in the case of raising a family; you are most likely better suited to rent a property.

4. You don’t want to own a home.

An often neglected factor in the rent or own debate is the factor of personal choice and this may very well be the most important consideration for both cases. If you want to rent, rent and if you want to buy, buy.

The pros and cons of either don’t often compare to what you feel on a personal level.

This is when and why you should own instead of rent.

1. You want to build equity.

From an only economic position, very few assets are as beneficial and influential to your portfolio as a home you own.

Your down payment and subsequent mortgage payments all earn you equity. This equity gives you security as well as leverage in most cases where you would need to take up a loan.

2. You want to secure something for yourself and your ties.

In terms of security, once you purchase a home and pay off your mortgage, that asset is yours and of immeasurable value to you, your family, your ties.

You will always be able to fall back to your property when anything goes wrong and you could potentially pass down your property as an inheritance down your family line to keep giving to yours.

3. You want it and you can afford it.

You’ve run the numbers and checked them twice and beyond a reasonable doubt, you can safely state that you can afford to place a down payment for a specific property without it hindering your ability to survive for the coming months and you’ve made sure that mortgage payments and their interest; won’t put you in the red.

In such a case which is also accompanied by a personal desire to buy a house, there is no reason for you to not do so.

Conclusion.

Renting or Buying are not similar and are not equal, what they are though is appropriate for specific and differing individual situations.

I hope that by going through this post you have been able to discover what you need for your specific situation.

If not, comment below or get in touch and I’ll help you through it.

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I am absolutely in love with learning and sharing all things real estate. I’m an agent for Jacaranda Real Estate In Harare, Zimbabwe. This blog will be the ultimate resource for all things real estate so subscribe and stay tuned.