Hidden Savings When Renting A Home
There are obvious financial benefits to buying a home. By becoming a homeowner, you finally own a major asset. Your monthly payments are going towards your own mortgage rather than into someone else’s pocket. You’re never going to have to deal with big rent increases.
However, finding an affordable home to buy in 2022 can feel impossible. The good news is that renting is still a worthwhile option, even with the price of rent rising. There are a number of hidden savings when renting instead of buying.
Renters insurance vs homeowners insurance
One of the biggest savings you get when renting is in your insurance payments. A renters insurance policy can cost as little as $5 a month. This is in comparison to an average of $192 a month.
The price difference is obviously because you are not insuring an asset worth hundreds of thousands when you rent. Renters insurance will cover your possessions as well as personal liability, and it is crucial for anyone who does not own a home.
The fact that your landlord takes care of maintenance is a huge benefit of renting. You don’t need to expend tremendous energy finding the right people to fix things and you don’t have to pay the costs. However, most renters don’t realize just how much money they would otherwise be spending on maintenance.
The rule of thumb that is thrown around is that you spend approximately 1% of the value of your home on maintenance every year. If you have a $300,000 home, that means you will pay $3,000 just to keep it in its normal condition.
For people buying older homes, that number could be significantly higher. Many new homeowners are shocked by just how much more they have to spend than they expected.
Homeownership comes with inbuilt costs. As a homeowner, you need to pay for property taxes. The average American pays over $2,400 a year on property taxes. However, this is not the same everywhere.
In Alabama, homeowners pay as little as $587 a year. In New Jersey, on the other hand, homeowners pay $8,300 a year! These taxes go towards funding public schools and other public services, but they are understandably a very unpopular form of taxation.
As a renter, you don’t have to worry about property taxes. That being said, your landlord probably takes them into account when deciding on what to charge for rent.
Homeowner Association (HOA) Fees
There are said to be two types of homeowners: those who hate the Homeowners Association (HOA) and those who are part of the HOA. Of course, the negative portrayal of HOAs in TV shows has led many people to assume they are much worse than they are. In plenty of neighborhoods around the US, people truly appreciate their HOAs.
Regardless of what you think of the local HOA, no one wants to have to pay HOA fees. Not all communities have HOAs and not all HOAs charge fees. However, some HOAs charge hefty fees, depending on what they do for the community. Condominium HOAs in particular tend to charge a lot for the upkeep of the building.
Buying a home comes with a bunch of hidden fees. One of those expenses is transfer costs. Transfer fees are what you pay for all the legal matters to be taken care of. As with any dealings in the legal industry, fees are expensive. They also may have to be paid out of pocket and not as part of the mortgage you get from the bank.
You get to avoid these fees as a renter. If you use a broker, though, you may have to pay high broker fees. While most people are more than happy to rent without using a broker, it is required in certain cities like NYC.
Renting can save you a lot of money. In today’s world, with a cost-of-living crisis and a lack of affordable housing to buy, it may be more worthwhile than trying to pay for a massive mortgage and its associated costs.