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Renting vs owning_a_home_powerpoint_presentation_1_9_3_g1[1] Renting vs owning_a_home_powerpoint_presentation_1_9_3_g1[1] Presentation Transcript

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