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Neighborhood Choice. Another benefit to renting is neighborhood choice . Even if you can’t afford to buy a home in your ideal neighborhood, you can often afford to rent a home or apartment there. Not Your Problem! One of the most attractive benefits of renting is that the renter is not responsible for maintenance and repairs (unless they cause the damage). If the roof leaks or the hot water heater goes out, the cost of repair is on the landlord, not the tenant. Likewise, a renter is not responsible for paying property taxes. The Downsides of Renting Building Wealth as a Renter. Many renters believe that they are coming out ahead financially because they pay less each month on rent than they would on a mortgage payment, and because they did not spend their savings on a down payment. However, renting can actually have a big financial downside when compared to homeownership. Through amortization and appreciation, homeowners can build substantial wealth just by staying in their home and making their mortgage payments. Renters, however, build wealth at a level comparable to owning a home only if they invest an amount equal to a down payment plus the amount they save each month by renting. Unfortunately, most renters do not have the discipline to do that. To build wealth at the rate of a homeowner, the amount saved by renting must be supplemented with a scheme for investing those savings . Escalating Prices. Across the nation, average rents have been increasing steadily for decades. As fewer Americans choose or can afford to own a home, the demand for rented homes and apartments is increasing, driving up rental costs . If you don’t plan on owning a home, understand that, for the foreseeable future, you’ll likely have to spend more and more of your income on steadily increasing rent. To stay within the recommended housing affordability ratio of 30% of net monthly income, you will have to increase your income, or find a less expensive home. Housing Security. On a month-to-month lease, a landlord can terminate a tenancy with advance notice of 30 days . Likewise, leases can simply not be renewed by the lessor at expiration of the lease term. It doesn’t matter if the tenant has been totally stellar, there is no law that entitles a tenant to remain in their rental unit indefinitely. This can create an unstable living situation for a tenant and their family . Imagine you rented a house on a one-year lease. You enrolled the kids in the local school, made friends with all the neighbors, and settled into a nice routine. Suddenly, out of the blue, you get notice from your landlord that the lease will not be renewed when it expires. There is no recourse. Although you wanted and expected to stay longer than a year, you must move out. A lack of housing security is a risk that comes with being a tenant, and it can seriously disrupt your life. Reflect on Learning: Can you list the benefits of renting? Lower cost, freedom to move, neighborhood choice, no responsibility for repairs or payment of property taxes. Can you state the potential downsides? Without a disciplined plan to invest the savings, renting may slow wealth-building efforts; reduced housing security. PRODUCT PREVIEW To build wealth like a homeowner, a renter must invest an amount equal to a down payment, plus the difference between a monthly mortgage payment and their rent.
Chapter 9 | Home is Where the Mortgage or Lease Is 162
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