- All homeowners run into unexpected expenses.
- Renting a home may be your best financial bet -- at least for now.
The dream of homeownership can often clash with reality.
Put aside the idea that you must own a home. I'm convinced that a group of real estate agents or builders' organizations played a role in planting the idea that homeownership is a key ingredient in achieving the American Dream. Last month, my husband and I closed on our 10th house. Some homes turned out to be a fair investment, while others have been giant financial belly flops.
If high prices and rising interest rates have you sitting out of the house hunt in 2022, that's okay. There are plenty of ways renting could be better for your bank account this year. Here are some of them.
1. Loss of amenities
One of the primary reasons we decided not to purchase a home when we lived in Northern California was that we'd have to give up so much to become homeowners. Not only would Northern California home prices leave us house poor, but the loft we were renting was in a really sweet spot. Just outside our building were a gorgeous pool and hot tub. A block away was a great sushi restaurant, and we were easily able to walk to live entertainment venues.
If real estate is all about location, location, location, our loft was in a location that would be difficult to duplicate.
If your current rental situation offers a gym, pool, sand volleyball court, or any other amenity you would normally have to pay for, you might want to save your money.
2. No repair or maintenance costs
When the garbage disposal in a rental breaks or a baseball breaks the window, it may be a hassle, but repair expenses don't fall on you. To give you an idea of how much paying for repairs and maintenance would cost, American Family Insurance offers this advice:
- Use the "square foot rule." The square foot rule says that to budget for home maintenance you should put away $1 for every square foot of livable space. So, if you have a 2,100 square foot home, you'll need $2,100, or $175 per month.
- Put the "10% rule." According to the insurer, homeowners should put 10% of their mortgage, 10% of their taxes, and 10% of their insurance premiums in an account dedicated to covering maintenance costs. Let's say your mortgage is $2,000 per month, taxes run $500, and total insurance premiums are $200. That means you'll need to put aside an extra $270 each month ($200 + $50 + $20).
Not quite ready to spend so much preparing for maintenance issues that have not yet arisen? Renting is the answer.
3. Cheaper insurance
Because we currently own a home, our mortgage company requires us to carry homeowners insurance. We have a policy with all the bells and whistles, including earthquake insurance and electrical outages. Our current policy runs just shy of $200 per month.
When we rent, we typically pay between $60 and $70 per month for renters insurance. Renters insurance is in place to protect our personal property in the event of peril, like a fire or storm damage. It doesn't protect the house or apartment (that's up to the landlord), but it does promise to replace our personal possessions if something goes wrong.
When you're trying to put money away for a future goal or plump your rainy day fund, renters insurance leaves you with more.
When we have lost money on a home, it's been due to the fact that we had to move for a job. Even in the middle of The Great Recession, we would have fared better if we could have waited to sell our home. We were moving across the country though, and the idea of holding onto that house while finding a new place to live was daunting. The expense would have been far out of our comfort zone.
The nice thing about renting was the ability to give notice and leave when it was time. Even though we always had a lease, we either planned around the time the lease was due to end, or my husband negotiated with his employer to cover the fee to break the lease.
If we'd been renters in 2008 rather than homeowners, we would have saved at least $35,000. Once the market turned upside down, and we were competing with foreclosures for buyer attention, we were lucky to sell our house. Even then, we had to take a fat check to closing to cover the difference between what we owed on the house and the much lower price the buyer was willing to pay.
Owning a house does have benefits, but that doesn't mean it's right for everyone. And even if it is right for you, it doesn't have to happen this year if it's not in your best interest.
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