RENTING VS. O

WNING

FA M I LY E C O N O M I C S A N D F I N A N C I A L E D U C AT I O N TA K E C H A R G E O F YO U R F I N A N C E S

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© Family Economics & Financial Education – Revised March 2009 – 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

INTRODUCTIONHousing 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.

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© Family Economics & Financial Education – Revised March 2009 – 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 CHOICEPersonal and financial goalsPersonal values, needs, and wantsAmount of money available for housing

costsFinancial resources and readinessCredit historyReal estate pricesLocation preferenceExpected length of stay in particular place

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© Family Economics & Financial Education – Revised March 2009 – 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 RENTINGMonthly rent Security depositUtilities – electricity, water, garbage, etc.Renter’s insurance

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© Family Economics & Financial Education – Revised March 2009 – 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

RENTINGA 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 tenantLandlord 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.

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© Family Economics & Financial Education – Revised March 2009 – 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 CONTINUEDTenant (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.

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© Family Economics & Financial Education – Revised March 2009 – 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 RENTALUpon moving into a new place, people are usually

required to pay various deposits and sign a lease.

Security depositAn advance payment to cover anything beyond normal wear and tear on the unit.

Pet depositMoney in addition to the security deposit that covers damages caused by a pet. Not all apartments allow pets. You may be asked to leave if you house a pet and it is not allowed in your lease.

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© Family Economics & Financial Education – Revised March 2009 – 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

Low move-in costsFixed monthly expensesEasy to moveLocation choices (may be

close to work or school)Less maintenance and

repair workFewer responsibilitiesMay 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

ADVANTAGES OF RENTING

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© Family Economics & Financial Education – Revised March 2009 – 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

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 deductionsMay lose rental if the

property is sold.

DISADVANTAGES OF RENTING

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© Family Economics & Financial Education – Revised March 2009 – 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 OWNERSHIPMonthly mortgage payments Down payment (one time cost)Closing costs (one time cost)Utilities – electricity, water, garbage, etc.Homeowner’s insuranceReal estate property taxesMaintenance

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© Family Economics & Financial Education – Revised March 2009 – 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 OWNERSHIPHome ownership - the buyer has purchased a

housing unit as property Goal of many Americans A large financial decisionOwning 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.

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© Family Economics & Financial Education – Revised March 2009 – 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 mortgageA home loan in which the real estate is the collateralCollateral is an item promised to the lender if the borrower does not pay back the loan, usually the home.

Down paymentAmount of money paid on the home at time of purchase Typically 10 – 20% of the purchase price of the homeRecommended purchase price amount an

individual should pay for a home2 ½ times their annual household income

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© Family Economics & Financial Education – Revised March 2009 – 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

Build equity which can be borrowed against if necessary

Pride of ownershipFeel more comfortable

and have more privacy

Stable mortgage payments

More room and storageImprovement 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)

ADVANTAGES OF OWNERSHIP

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© Family Economics & Financial Education – Revised March 2009 – 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

Large down paymentMove-in costsInsurance costsPossible for property

to decrease in valueTime, money, and

energy commitmentRepair 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

DISADVANTAGES OF OWNERSHIP

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© Family Economics & Financial Education – Revised March 2009 – 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.