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Renting vs. Owning. The Difference Between Renting and Owning a Home. Outline. Introduction Reasons for making a housing choice Comparison of Expenses Renting Advantages and disadvantages Owning Advantages and disadvantages. Introduction. Housing is the largest personal expenditure - PowerPoint PPT Presentation
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Renting vs. Owning
The Difference Between
Renting and Owning a Home
1.9.3.G1
© Family Economics & Financial Education – Revised April 2005 – Housing Unit – Renting vs. Owning a HomeFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Outline
Introduction Reasons for making a housing choice Comparison of Expenses Renting
– Advantages and disadvantages Owning
– Advantages and disadvantages
1.9.3.G1
© Family Economics & Financial Education – Revised April 2005 – Housing Unit – Renting vs. Owning a HomeFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Introduction
Housing is the largest personal expenditure– About 1/3 of a person’s income
Choosing where to live is based upon a person’s goals, values, needs, and wants
Places to live include:– House, apartment, condo, mobile home, etc.
1.9.3.G1
© Family Economics & Financial Education – Revised April 2005 – Housing Unit – Renting vs. Owning a HomeFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Reasons for Making a Housing Choice
Personal and financial goals Personal values, needs, and wants Amount of money available for housing
costs Financial resources and readiness Credit history Real estate prices Location preference Expected length of stay in particular place
1.9.3.G1
© Family Economics & Financial Education – Revised April 2005 – Housing Unit – Renting vs. Owning a HomeFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Costs of Renting
Monthly rent Security deposit Utilities – electricity, water, garbage,
etc. Renter’s insurance
1.9.3.G1
© Family Economics & Financial Education – Revised April 2005 – Housing Unit – Renting vs. Owning a HomeFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Costs of Ownership
Monthly mortgage payments Down payment (one time cost) Closing costs (one time cost) Utilities – electricity, water, garbage, etc. Homeowner’s insurance Real estate property taxes Maintenance
1.9.3.G1
© Family Economics & Financial Education – Revised April 2005 – Housing Unit – Renting vs. Owning a HomeFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Renting
Rent– The cost of using someone else’s property
Tenant (renter)– The person who rents the property
Renters are generally– People who choose not to own a home– People who cannot afford to own a home
1.9.3.G1
© Family Economics & Financial Education – Revised April 2005 – Housing Unit – Renting vs. Owning a HomeFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Renting continued
Landlord– Owner of the rental property– May perform management duties or hire a property
manager Property manager - may charge a fee to the landlord
to perform the management tasks
Duties– May collect rent and deposits, pay utility bills,
complete repairs and maintenance, watch over the property, respond to tenant complaints, assign new tenants, etc.
1.9.3.G1
© Family Economics & Financial Education – Revised April 2005 – Housing Unit – Renting vs. Owning a HomeFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Moving into a Rental
Upon moving into a new place, people are usually required to pay a security deposit and sign a lease
Security deposit– An advance payment to cover anything beyond normal
wear and tear on the unit Lease
– A legal contract between the tenant and the landlord, specifying the responsibilities and rights of both parties
– Identifies the rent amount, security deposit amount and specifications, payment for utility bills, late payment penalties, length of lease, eviction terms, etc.
1.9.3.G1
© Family Economics & Financial Education – Revised April 2005 – Housing Unit – Renting vs. Owning a HomeFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Advantages of Renting
Low move-in costs Fixed monthly expenses Easy to move Location choices (may be
close to work or school) Less maintenance and
repair work Fewer responsibilities May offer extra
amenities such as a tennis court or pool
Less expensive than home ownership
May be able to save for other wants or needs if renting a less expensive apartment
Other expenses may be included in rent payment such as electricity, water, sewer, and/or garbage
1.9.3.G1
© Family Economics & Financial Education – Revised April 2005 – Housing Unit – Renting vs. Owning a HomeFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Disadvantages of Renting
Subject to terms of a lease
Rent may change with little notice
Less privacy and transient neighbors
Restrictions on noise level, pets, etc.
Fewer opportunities to upgrade apartment such as new carpet, paint, or wallpaper
When leaving a property, no equity is returned as it would be if selling a home
No tax deductions May lose rental if the
property is sold
1.9.3.G1
© Family Economics & Financial Education – Revised April 2005 – Housing Unit – Renting vs. Owning a HomeFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Home Ownership
Home ownership - the buyer has purchased a housing unit as property– Goal of many Americans– A large financial decision
Owning a home is an investment because if a person sells a home for more than what it was bought for, the person makes money. This is called equity.
Financial planning and savings can assist a person in planning for the benefits of home ownership later in life
1.9.3.G1
© Family Economics & Financial Education – Revised April 2005 – Housing Unit – Renting vs. Owning a HomeFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Purchasing a Home
90% of buyers take out a mortgage– A home loan in which the real estate is the collateral– Collateral is an item promised to the lender if the
borrower does not pay back the loan, usually the home Down payment
– Amount of money paid on the home at time of purchase – Typically 10 – 20% of the purchase price of the home
Recommended purchase price amount an individual should pay for a home– 2 ½ times their annual household income
1.9.3.G1
© Family Economics & Financial Education – Revised April 2005 – Housing Unit – Renting vs. Owning a HomeFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Advantages of Ownership
Build equity which can be borrowed against if necessary
Pride of ownership Feel more comfortable
and have more privacy Stable mortgage
payments More room and
storage Improvement of
buyer’s credit rating
Income tax deductions for property taxes and mortgage interest
Potential for property to increase in value
Free to make home improvements and have pets (items typically not allowed in rentals)
1.9.3.G1
© Family Economics & Financial Education – Revised April 2005 – Housing Unit – Renting vs. Owning a HomeFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Disadvantages of Ownership
Large down payment Move-in costs Insurance costs Possible for property
to decrease in value Time, money, and
energy commitment Repair and
maintenance costs
Property taxes can raise substantially
Money is tied up in the home
May take several months to sell a home if trying to relocate
1.9.3.G1
© Family Economics & Financial Education – Revised April 2005 – Housing Unit – Renting vs. Owning a HomeFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Keep In Mind. . .
People are always paying for a home. It’s just a matter of whether it is
for themselves or their landlord.