Buying and owning a home—isn’t it part of the American dream? Not necessarily. Home ownership can be a joy and a significant financial move for some, but it can also be a drain on your time and wallet that holds you back from other dreams.
Just like the move away from a single, life-long job with a pension toward more flexible career growth and opportunity building, there is growing awareness of the advantages of renting as a deliberate housing plan rather than a stopgap.
The Financial Benefits of Renting
Comparing a rent payment to a monthly mortgage payment can be a bit of an apples-to-oranges situation. There are both visible and hidden costs of buying a home and renting one. Discover the charges that can bump up homeowners’ monthly housing costs significantly:
Lower Upfront and Ongoing Costs
Signing a lease agreement and moving in comes with monthly rent plus some upfront costs. These upfront costs can include:
- Application fee, usually $30 – $100
- Move-in fee, typically equal to 33% – 50% of one month’s rent
- Refundable security deposit, usually equal to 1 – 2 months’ rent
- Pet damage deposit or fee, typically equal to 40% – 85% of one month’s rent
Using these rates, a new renter with a $1,500 monthly lease who has one pet will need an average of $3,883 in addition to first month’s rent, $3,188 of which may be refundable.
On the other hand, the average single-family home closing costs for a new homeowner in 2021 were $6,905 nationwide, and as high as $29,888 in high-cost Washington, DC.
Plus, unless they can put at least 20% down, new homeowners will likely pay private mortgage insurance (PMI) of 0.58% to 1.86% of the original conventional home loan amount annually. For a $250,000 home loan, that’s $1,450 to $4,650 on top of monthly mortgage payments.
Freedom from Maintenance Costs and Repair Bills
A minor fix might entail a trip to the local hardware store and $50 in materials, but homeowners are on the hook for thousands for major repairs. Many parts of a house have a decade or two lifespan, so owning a home for any amount of time means covering:
- Roof, window, and siding replacements
- Appliance repairs and replacements
- Heating and air conditioning system breakdowns
- Drain cleaning and sewage pipe repair and replacement
Renters may need to find a temporary place to shower or sleep during a serious issue, but typically repair responsibility and maintenance cost belongs to the landlord.
No Real Estate Taxes
Property tax is the single largest source of nonfederal tax collections—72.2% of local tax income and 32.2% of combined state and local tax income in 2020. For a single-family home, that calculated to an average of $3,719 nationwide and over $10,000 in high property tax counties.
While property taxes are a factor for landlords in setting rental rates, you won’t pay property tax directly as a renter or have to worry about increases that come with each year’s property assessment.
Lower Insurance Costs
Renter’s insurance is a fraction of what you pay for homeowner’s, since insuring a property and building along with its contents is much pricier than just the contents. The average annual cost in 2023 for renter’s is $174 vs $1,428 for homeowner’s insurance on a $250,000 dwelling.
The Economic Factors Driving the Renting Trend
Recent years have seen a spike in residential real estate values nationwide, but the 2020 – 2021 interest rate drop that bottomed out at 2.65% in January 2021 jumped back up above 5% in 2022, peaking (so far) at 7.8% in November 2022.
Those numbers mean that a $250,000 house (if you can find one in your preferred location) bought with a 20% downpayment and a 30-year fixed mortgage will cost you approximately:
- $1,079.76 monthly mortgage payment and $90,134 total interest paid at the 2.65% rate
- $ 1,713.57 monthly mortgage payment and $318,307 total interest paid at the 7.80% rate
For many, these numbers just don’t add up to a wise investment, particularly if you’re not planning to buy and remain in a house for decades.
The Role of Residential Sale-Leaseback Programs
Already a homeowner? Consider learning how to sell your house and rent it back with a sale-leaseback solution. By selling to an investor-landlord—instead of packing up and finding a new place to lay your head, you stay on as a renter. The many sale-leaseback benefits include:
- The legal right to remain in your home
- A locked-in monthly rent payment and limits on future rent increases
- The cash value of your home equity to invest in travel, business expansion, or family goals
- No more property tax or homeowner’s insurance payments
- Freedom from the work and cost of covered repairs and maintenance
For current homeowners, a sale-leaseback provides a bridge between owning and renting that allows you to offload homeownership costs and responsibilities without a move-out deadline. The comforts of home plus the flexibility of rental living—you can provide notice and move on when you choose.
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