When you start looking at places to live, you always have the option of buying or renting. When you rent, you should sign a lease that outlines the full terms of the arrangement including how long the lease is for. Buying and leasing each have their own pros and cons, and it is a good idea to compare the two before making your final decision.
Up Front Costs
When you buy a home, you have thousands of dollars in up front costs that include the down payment, filing fees, lawyer costs, and real estate commission (if you are the seller). The most common down payment is 20 percent of the purchase price, with the rest of the costs being approximately five percent of the purchase price. For a $100,000.00 home, you would be paying around $25,000.00 in up front costs.
When you rent, your up front costs consist of first month’s rent and the security deposit. If you need to put down an extra deposit for pets, then that would be part of the costs as well. Many landlords are making it mandatory for tenants to have renter’s insurance, which is extremely inexpensive. All told, you might have around $2,000.00 or less in up front fees for renting.
Where The Money Goes
While it costs many times more in up front fees to buy a home, all of that money goes towards the purchase of the property. As you pay your mortgage, your equity grows and you can borrow money against your home’s value. After 15 or 30 years of payments, you own the home outright.
The money you pay each month in rent builds you no value at all and does not get put towards the purchase of the property. When you pay rent each month, you are paying money you will never see again and will never get any value from.
Maintenance and Repairs
Most rental properties have it written in the lease that the landlord takes care of year round maintenance. That means that the landlord shovels the snow in the winter and mows the lawn in the summer. If the roof leaks, it is the landlord’s responsibility to repair it. When you rent, you save thousands of dollars every year on maintenance and repairs.
If you purchase a home, all of the maintenance and repair costs come out of your pocket. You are the one responsible for the snow and the lawn, and it is your bank account that suffers when the roof starts to leak. While upgrading your home can add value to it and give you more equity, most repair and maintenance projects sustain value and offer nothing in return.
The biggest risk you take when leasing a home is that the landlord could decide to sell the home at any time and give you 30 days notice. But if you find a landlord you are comfortable with, then leasing might seem more beneficial than buying. If you want your money to add value for you, then you might want to look into buying. The decision to buy or lease is very much based on your personal preferences for how you want to live.