Everyone who has owned property – whether it’s a condo or a single-family home or investment property – has had those days when you have no idea why you’re doing this. Isn’t renting easier, less stressful and maybe even less expensive? Well, if you ever thought about renting, you’re probably thinking about it more after last year’s hurricane season. But not so fast.
Renting rather than owning has its own set of positive and negative attributes. Renting gives you the flexibility to move, change jobs or get out of bad weather. Renting is usually less expensive with upfront costs, certainly far below a house downpayment. There is less responsibility relative to maintenance; usually, landlords make repairs and replace mechanical malfunctions, a fixed payment at least for the term of the lease and no surprise appliance replacement costs or storm damage to repair.
The flip side of the coin is that you’re not building equity for the future by either paying off a mortgage or accumulating appreciation. Depending on your age and lifestyle, this may or may not be an issue. Landlords can raise rent upon the lease renewal to whatever the market will bear. Lack of control as it relates to personalization or modification of the property is a problem for many people; also, the always unknown of what a landlord has in mind for the future use of the property. There are rent vs. own calculators online if you need hard numbers on a property you’re thinking of renting.
There is also another way to rent rather than own; one way is the rent-to-own option. This arrangement is nothing new and typically is designed to help first-time owners to get a foot in the door of home ownership. Rent-to-own agreements put aside a portion of the buyer’s/renter’s monthly rent payment to use as a down payment on the ultimate purchase of the property.
Another option is the lease/purchase, which obligates the buyer to purchase the home at a pre-negotiation price at the end of the lease, or a lease option at the end of the lease, which allows the buyer the option to purchase if they want. Both lease purchase and lease option contracts have the ability to set aside a portion of the rent for the future transaction. Builders frequently offer the rent-to-own ability for new construction as a way to get people into vacant homes and mitigate the builder’s carrying cost.
These techniques are now also being used by buyers who have adequate funds and ability to purchase a home. Buyers in this category are choosing to rent under one of the rent to own options and hold on to their money for investment purposes. This has become more popular as part of the fallout of increased mortgage rates, making borrowing money more expensive with the hope of reduced rates in the future.
All of these transactions are complicated and may be risky for both renter/buyers and seller/landlords. Legal advice is vital, and every detail of the arrangement needs to be clearly spelled out. Who pays the taxes and insurance, who is responsible for lawn maintenance, is the property furnished and who is responsible for wear and tear on the furniture, I could go on, but the point is the devil is in the details.
So now that we’ve all lived through what we’re hoping was the worst hurricane season ever, do we still want to own or rent? The answer to this question is highly personal and very difficult to decide. I for one am reserving my answer to this question till Nov. 15. Stay safe.
