Five Hidden Costs of Renting
A seller’s market has emerged in many areas around the country, but the rising costs aren’t impacting only homebuyers. The rental market has also gotten more expensive.
And although renting can limit some housing expenses like taxes and maintenance, those savings can cost you in ways you may not have considered.
Bidding wars and losing out to all-cash buyers are not a part of homebuying that anyone looks forward to. However, the rental landscape in high-demand areas may be just as stressful. Applications for an available rental, especially if it’s a home rather than a unit in an apartment complex, may flood in even faster than offers for a property up for sale.
Landlords may have income and credit requirements that exceed a mortgage lender’s, and in some cases, have sought personal letters to influence their decision. So if part of your hesitancy is due to the process, you might find the alternative is not as simple as you hoped.
Of course, being a renter allows you to avoid some of the expenses that accompany property ownership. But some of those will be replaced by security deposits, pet rent, parking fees or other charges designed to protect your landlord’s investment. If you haven’t already, consider adding up the unique costs of your rental to discern the advantages of owning.
Settling into a home includes making changes that fit your lifestyle and preferences. One of the freedoms that result from homeownership is the ability to customize your house in any way that your budget, and possibly your homeowner’s association, will allow. However, even if a landlord approves your plans to upgrade a rental unit, your benefit from the time and money spent will end as soon as you leave. Meaning your efforts won’t provide any equity as they would have in a home you had purchased.
Renting can be the perfect solution for someone who doesn’t expect to stay in the same place for long. But beyond the term of your lease, your future may depend on the whims of the property owner. For example, a substantial rent increase could be awaiting your next renewal, or a decision to sell could have you looking for a new place at the worst possible time. Regardless, the stability of a 30-year mortgage is difficult to match.
Most importantly, renting could be costing you long-term wealth. When your rent goes up, it’s likely because the property values in the area are increasing. For homeowners, this means additional equity that will benefit them in the future. And while a mortgage payment may be more than rent, remember that part of every loan payment is also adding to your equity. Meanwhile, the interest charges are near record lows. So, the sooner you buy a home, the more quickly you will benefit from the wealth-building advantages that come with it.