Family Economics and Financial Education Take Charge of your Finances Renting vs. Owning Family Economics and Financial Education Take Charge of your Finances

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.

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

Costs of renting Monthly rent Security deposit Utilities – electricity, water, garbage, etc. Renter’s insurance

Renting A lease is 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. This is between the landlord and the tenant 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 task Duties may include: May collect rent and deposits, pay utility bills, complete repairs and maintenance, watch over the property, respond to tenant complaints, assign new tenants, etc.

Renting continued Tenant (renter) Renters are generally 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. The tenant pays rent to the landlord which allows them to live in the rental property. Rent The cost of using someone else’s property.

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.

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 Typically 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

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.

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

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.

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

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)

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

People are always paying Keep In mind. . . People are always paying for a home. It’s just a matter of whether it is for themselves or their landlord.