Renting vs Owning – The pros and cons
Gary Das (Account Closing Soon....)
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In this article, we will be looking at the pros and cons of renting somewhere and the pros and cons of owning your own home.
Renting is the idea of paying someone e.g. a landlord, for the use of their assets e.g. property.
Pros of Renting:
- There is no cost to repair any minor damages/general maintenance
A major advantage of renting a property is the fact that you have no maintenance costs or repair bills to pay, your landlord is responsible for this. For example, if the roof starts to leak or an appliance stops working, you are not financially responsible for this.
As a tenant, you will have a written tenancy agreement. This will usually include details about who is responsible for repairs and how often certain types of repairs will be carried out. Your landlord must carry out the repairs the law says they are responsible for, even if your agreement states something different.
The landlord’s responsibilities include:
- The structure and exterior of the building, including the walls, stairs and banisters, roof, external doors and windows
- Sinks, baths, toilets and other sanitary fittings, including pipes and drains
- Heating and hot water
- Chimneys and ventilation
- Electrical wiring
- You can move at will
You can leave. You’re not tied down. You can get a short tenancy agreement and move on at the end because your money isn’t tied up in the property. Tenancies can start from as little as six months and you can move after this is up if the property isn’t working for you or you decide it’s time for a change.
Short term lets allow you to live there if you are between moving houses or if you are doing renovations in your own home.
As a tenant, it isn’t your responsibility to find someone to take over the lease and due to not owning the property, you don’t need to find a buyer either.
- Money to invest
After paying rent, you may have additional money that you can use to invest elsewhere. This could be saving for a deposit on a house or even investing in the stock market. Whatever you choose to do with your money, you don’t need to worry about putting additional funds into maintenance or repairs.
Cons of renting:
- Landlord could decide to sell the property
Your landlord has the right to sell their property whenever they choose to do so – but your lease still stands and the landlord has to abide by this. Leases are contracts and they plan ahead for anything that might happen in the future. Within your lease there should be something that talks about what happens if your landlord decides to sell the house, this could rather state that you are allowed to stay until the lease is up or it may allow your landlord to break the lease and make you move out. Although your landlord must give you at least 30 days’ notice.
But unless your lease says otherwise, you have the right to live there until your lease is up.
- Wasted money
Sometimes renting can be considered ‘dead money’. All of your rent payments each month go to your landlord, potentially leaving you with little money to save each month, none of it going towards saving for your dream home. Landlords can also decide to increase your rent, meaning you’ll be giving away more of your money.
If you never end up buying a house, you’ll end up paying rent for your entire life, even after you’ve retired. This could potentially take a lot of your pension each month, not leaving you with a lot to be able to go out and enjoy your retirement.
On top of the money you have to pay per month, you also would’ve had to pay a deposit on the property. Sometimes you will never see this money again, your landlord might decide to keep some or all of the money if they decide that the property isn’t up to their standards when your lease is up.
- No pets or personalisation
Usually, landlords set rules and restrict changes you can make to the property. This means you cannot decorate, refurbish or potentially extend the property.
In some cases, landlords do allow you to redecorate and make minor improvements, but the money you invest in the property is essentially wasted because although you have increased the value of the house, this only benefits the landlord as they are the ones who can adjust the rent or sell the house.
Many agents/landlords used to consider pets but recently it has become increasingly difficult to find accommodation that allows pets such as cats and dogs. Some landlords require a much higher security deposit and request that you pay for professional cleaning and flea treatments for the house before you vacate the premises.
Informing your lettings agent that you have a pet is crucial as the rules are strict around pets and properties. If you fail to inform your lettings agent or landlord that you have a pet in the property, you would be in breach of your tenancy agreement and run the risk of legal action being taken against you, of which could result in your landlord seeking to forfeiture your lease.
Pros of Owning:
- Security
When you pull up in the driveway of your property, you have the peace of mind that it’s yours. You have a feeling of safety and security. You have more freedom with what you can do and can add more literal security e.g. Burglar alarms, security cameras, different types of insurance, etc.
By owning your own home you can settle, you can stay there for years if you want to, whatever you decide to do with your property is your choice (please note that planning permission and other legal regulations may apply), it increases your stability, meaning increased comfort in your work, learning, and social environments.
- Asset Appreciation
The increase in the value of an asset over time. This is the idea that your property may increase in value over time. This could happen for a number of reasons e.g. your pumping a lot of money into your property, there is a high demand for the property or you have made adjustments/improvements.
Either way, you own your home and its contents, they are your assets.
- Opportunity to personalise, change and improve
When you own your own home, there are endless possibilities as to what you may choose to do with it.
Not only may your improvements increase your home’s value, you will also feel the benefits. Changes could be as small as re-decorating e.g. painting or wallpapering, re-carpeting the floor or re-tiling the bathroom. Or going to the other end of the spectrum adding an extension. As an example, adding a conservatory may have over 70% return on your investment according to Zopa on 25/11/2014.
Cons of owning:
- Money is tied up in assets
Having money tied up in assets isn’t ideal. Being asset rich but money poor means that you may have to sell certain assets so you would have enough liquidity to support yourself.
- Tied down
Owning a home is a long-term commitment, both personally and financially. It ties you down in the sense that you’re confined to your community, you’ll create ‘ties’, so to speak and they will make it more difficult to leave a location e.g. children with friends, family.
- House values can decrease
During the first few years of you owning a house it is unlikely that the house will increase in value, so if you decide to sell within the first few years, it is possible that you may get less than what you paid for it.
There are a few reasons as to why a property would decrease in value, this includes;
- Increasing Mortgage Rates: As interest rates increase, home affordability decreases. Potential buyers can’t afford to spend as much on the initial purchase price because of the increasing mortgage rates.
- Weather: A slightly funny one but as relevant to the UK as it is overseas. Mother Nature can decrease your properties value, natural disasters such as hurricanes, floods, etc. These natural disasters can damage your home, sometimes to the point of disrepair. Providing you have insurance, you will receive money to repair the damage, but usually, this is not enough. If the damage is repairable, the next thing you have to worry about is selling your house. People are very apprehensive about buying a property in an area that was previously devastated by disaster, even it was a freak, one-time occurrence.
- Repossessions/short sales Decrease Neighbourhood Value: These threaten the value of your property in the sense that foreclosures can and will sell for considerably less than the average house in the area. Also, prospective buyers may worry about the future value of the property and even if they are still interested the will try and negotiate the price down.
Do these reason ring true for you? Are you thinking of buying? Here at Active Brokers, we specialise in helping business owners, entrepreneurs and more to find what works best for you. It can take 6-24 months to prepare for mortgage success, to ensure you do not miss out on your dream home and to get all your ducks in a row, book a free strategy call so we can ensure that you have everything in place to maximize success.
Next steps:
Visit our website: https://activebrokers.co.uk/
Buy the book: https://activebrokers.co.uk/book/
Contact us: https://activebrokers.co.uk/contact/
Or watch the video: https://www.youtube.com/watch?v=JG5kuvF72LQ&t=19s
*Sources:
· This blog does not constitute advice, it is for information purposes only.
· You should contact a mortgage broker for personalised advice for your specific circumstances. Please ask us for a personalised illustration.
· We charge a fee of up to 2% of the amount borrowed. Up to ￡995.00 is payable on application and the rest is payable on offer of the mortgage.
· Active Brokers Limited is authorised and regulated by the Financial Conduct Authority and is entered on the Financial Services Register (https://www.fca.org.uk/register) under reference 488342.
· Your home may be repossessed if you do not keep up repayments on your mortgage.
· The mortgage industry does change over time but everything I have said is correct as of 13/03/2017
· The Financial Conduct Authority do not regulate Business Buy to Let Mortgages.