Renting vs buying a home in U.S.

January 8th, 2019

Considering the costs of owning a residential property, especially factoring the upfront cost as opposed to renting a home, many young people prefer renting to support their independent lifestyle. Once they start building up their careers, save money and start a family, they move to owning a home. Ironically many old people tend to sell their family house and become renters. As per a study by U.S. Census Bureau in 2017, the rate for U.S. home ownership has fluctuated between 62% and 70%. While the rental vacancy rate was 7.3% which was a near 20 year low. The home ownership rate has been stagnant for decades and that decline is mainly due to economic and demographic factors including elevated housing prices in some of the highly populated markets as well as high student debt loans that would prevent many younger buyers from saving enough to own a home. Whether to purchase a residential property is a personal choice and that decision varies market to market and what may make sense in Las Vegas may not apply in Florida. American culture idealizes home ownership to a certain extent; emotional as well as social pressures can also affect the decision of owning a home and not just the financial concerns.

Various upfront and closing costs of owning a home includes:-

* Earnest money to show the seller how serious you are about buying the property, which generally ranges from 1 to 3 percent

* Down payment which is the percentage of the home’s purchase price that you pay upfront, typically during closing

* Home appraisal is required to ensure that the offer price matches the real value of the home and lenders require that prior to approving the loan

* Home inspection which buyers are strongly encouraged to get one even though private money lenders would rarely make loan approval conditional on a complete home inspection

* Various types of property taxes which are paid upfront by the owner and usually in 6 month increments and this varies widely based on your local tax rate

* Homeowners insurance for the first year is required by lenders and you would mostly pay a premium upfront for the first year

* Other closing costs which includes loan origination charges, credit report fee, flood certification fee, lender’s and owner’s title insurance, 1st month mortgage interest etc.

Depending on the local real estate market condition and general economic climate, the seller may agree to pay some or all of your closing costs.

Various recurring costs with homeownership that includes:-

* Monthly escrow payment and loan payments that you need to make monthly principle and interest payments for the life of your mortgage loan

* Private mortgage insurance cost is there if your mortgage lender is a private company and your down payment is less than 20% of the purchase price of your home

* Utilities such as water, gas, electricity, garbage and recycling, cable and internet etc. and more as required as a homeowner

* Maintenance costs for which you are also responsible to upkeep costs such as replacing wear and tear on fixtures and appliances, exterior and interior painting and finishing etc.

* Repairs cost which are often necessary while purchasing a pre-owned home that requires extensive repairing such as a vintage property

Rental costs involves:-

* Security deposit is required by landlords against property damage requiring various repairs, broken leases etc. many states in U.S. limit security deposits to 1.5 times monthly rent

* 1st month’s rent which most landlords require upfront and if you move in the middle of the month, your landlord may accept a prorated rent payment

* Non refundable deposits which can be charged depending on the rental property laws in your state, your living condition and as per your landlord’s preferences

* Moving costs which renters have to pay to move their belongings whether by hiring movers, renting a truck or driving it themselves etc. also same applies to home buyers

Recurring costs for renters include:-

* Monthly rent is required unless you are living in a rent controlled neighborhood or a city with strict renter protection laws and your rent can increase whenever you sign a new lease

* Rent of pets which some landlords charge, usually ranges around $10 to $40 per month depending on the animal as well as the base rent

* Insurance of the renter is highly recommended to protect against loss due to theft, fire or other perils even though the renters are not required to carry renters insurance

* Various utilities costs which varies by landlord and region and that is generally seen in larger apartment buildings which may include things like cable and internet

* Laundry charges as many rentals don’t have in-unit laundry machines and tenants either need to find a nearby Laundromat or use coin or card operated machine onsite

Advantages and disadvantages of buying a residential property

* Unlike the renters, homeowners build equity over time and they can also boost the home’s value through judicious investments in home improvement

* Tax benefits such as homestead exemption which many states exempt owner-occupied homes as well as federal tax deductions if you itemize your federal income taxes

* Potential for rental income if you think of your home as an investment property and turn it into a source of income which can partially offset your mortgage, tax, insurance payments

* Creative freedom as a homeowner as long as you don’t break local building codes or violate the homeowners association rules, you can improve and customize your home as you desire

* Sense of belonging and community is there for homeowners since they tend to stay in the home for longer periods of time compared to renters

* Potential for financial loss if your home values in your area decrease or remain flat during your tenure as a homeowner, dragging down the appraised value of your home

* Responsibility for maintenance is there as a homeowner and you can expect to pay about 1% of the value of your home annually towards various expenses like replacing furnace

* Most houses aren’t sold furnished as fully furnished homes are far from commonplace, particularly in a single family construction setting

* Higher upfront costs vary greatly depending on the size of the down payment and value of the home and you can expect to spend no less than 6% of your home’s value

Advantages and disadvantages of renting a property:-

* No responsibility for maintenance as a renter as you just need to call your landlord or superintended for any extensive repair

* Relocating is easier as a renter and is less time consuming and potentially less expensive compared to selling a home which takes time and effort

* There is no exposure to real estate market for a renter as home values fluctuate in response to changing economic climate and that is a problem of the landlord as opposed to the renter

* Credit requirements are generally less strict although many landlords require prospective renters to undergo a credit check, that is rather a zero sum proposition

* Some utilities may be there in many multi-unit building where owners cover the cost of most or all utilities, including cable television

* No equity building advantage for the renter unless you’re party to a rent-to-own agreement because every single dollar you pay in rent is gone for good

* No federal tax benefits to renters as they are not eligible for any housing related federal tax credits or the deductions

* Limited control over ongoing housing costs is common for renters unless you are living in a municipality with rent control laws, landlord can raise your rent once your lease expires

* Limitations in housing security as no law entitles you to remain in your rental unit indefinitely despite most jurisdictions providing renter protection laws We recommend visiting this article to decide what will be better for you as per your budget. Foreign buyers have below advantages when buying a property through us:-

* No social security number requirement

* No U.S. tax return requirement

* No U.S. bank account requirement

* No U.S. credit history requirement

Feel free to consult us whether you are buying, investing or looking for a rental property in the U.S.