We can’t count the number of times we’ve heard that owning a home is so much better than renting. Now, we don’t want to take away from the fact that owning a home is a great investment! Yet, homeowners have to pay a lot of expenses that people fail to mention. Upkeep, taxes, maintenance- the list goes on.
That’s why we’re here to uncover some major financial pros related to renting a home. This article discusses the expenses that homeowners have to pay that renters don't. 😎
1. Property taxes
Owning a home ain’t cheap- property taxes are one of the biggest contributors to that. An average American household spends around $2,471 on home property taxes every year. Property tax rates can be significantly high in some states, so it can be an expense that easily racks up.
The average rate of property taxes across the US is 1.12%. Yet, this value can drastically change depending on where you are. As an example, the state of Illinois has the second-highest property tax rate at 2.27%. If your home has a value of 217.5K, you’ll be paying almost 5,000 dollars in annual taxes alone. 😲
Unlike your mortgage, property taxes are an ongoing yearly charge. It doesn’t matter if your mortgage is paid off, property taxes are charged according to the value of your home.
As a renter, you don’t have to worry about that! The landlord takes care of the property taxes while you’re able to save that cash.
2. Mortgage interest
Every homeowner has their own unique mortgage interest rate. Your down payment, mortgage length, home value, and credit history affect this rate.
Some people can get a pretty low (almost negligible) mortgage rate. Yet, many others don’t get that lucky. Mortgage rates come with 3 options: 30-year, 15-year, or 5/1 ARM plans.
Currently, the average rate for a 30-year fixed mortgage rate is around 3.99%. This plan offers you the most amount of time to pay off your mortgage. The con- it has the most expensive rates.
So, why are we talking about this? Well, some people don't have enough savings or can't get a low-interest rate. That means they get stuck in a 30-year mortgage. Over time, you end up paying more interest. 🙌
3. Home insurance
Home insurance works similarly to property taxes. It varies depending on where you live and the value of your home.
Unfortunately, the cost of home insurance has been increasing over the years. In the past decade, insurance rates have gone up almost 47%! 😮
Additionally, owners pay a yearly average of $1,083 in homeowners insurance. Renters insurance ends up being significantly cheaper than home insurance. Not to mention, it's not necessarily mandatory (although highly recommended). The average cost of a renters insurance policy is $187 per year. Renters definitely come out on top with this one!
Happiness is not having to worry about paying the water or heat bill at the end of the month. 😅 Homeowners don't get that luxury as they're in charge of paying for all their utilities. This includes electricity, water, heat, gas, cable, and internet.
Many landlords will cover the cost of some utilities. Usually, it'll be water, gas, and heat, but if you're lucky, you could get free laundry too!
The average homeowner spends around $400 a month on utilities. Meanwhile, renters should budget around $240 for their utility bills. As a tenant, you'll get to save a good amount of money by the end of the year.
5. Maintenance and repairs
One of the greatest luxuries of renting is that you don't have to worry about maintenance and repairs. If the water heater decides to break or a drain gets clogged- ring, ring- you get to call maintenance to fix it. 🙌 The problem gets solved with little effort on your part.
As a homeowner, every maintenance issue becomes your responsibility. Not to mention that some repair costs can get real pricey. As such, a homeowner has to set aside savings for regular maintenance or surprise issues.
6. Real estate and legal fees
Buying and selling a home comes at a cost. Although negotiable, most homeowners pay around 5-6% in commission to their real estate agents when selling a home.
Now, you may think that buyers get off unscathed. We’re here to tell you that they also indirectly pay for the commission. Some homes will wrap up commission fees in the price of the home so that the buyer ends up footing the bill.
Let’s put this into perspective. If your home is valued at 250K, at 6% commission, homeowners end up paying 15K in real estate fees! They also have to pay additional legal fees.
Renters don't have to worry about any of that! They simply put in their notice and move out. ✌️
7. Closing costs
Now, closing costs are not included in real estate fees and commission. The two are completely different. So, on top of paying fees when you buy a home, you also have to add closing costs to the list!
Buyers pay between 3-6% in closing costs of the purchase price of the home. So let’s hash this out again. If you’re buying a home that’s 250K at a rate of 4.5%, you’ll have to pay over 11K in closing costs alone.
Similar to the previous point, renters don’t have to keep this expense in mind! The most you’ll pay when getting a rental is the security deposit (which you get back) and application fees.
8. Landscaping expenses
This one is simple. Most rentals don’t even have a backyard, and if they do, the landlords are in charge of its upkeep. Similarly, as a tenant, you don’t have to worry about landscaping and front lawn care.
Homeowners have to pay for all the supplies and equipment to maintain their yard. It’s also not just a financial expense, you have to spend time taking care of your lawn. Even if they decide to hire a landscaping company, homeowners still have to incur that cost.
9. Renovation costs
Now, we know that homeowners aren’t constantly renovating their homes. But, after many years of wear-and-tear, many people renovate rooms or their entire homes. Renos are also NOT cheap (we're talking thousands of dollars). Although it’s possible to do budget-friendly projects, renovation costs still rack up.
Landlords usually renovate once every decade or every few years. Apart from not having to organize the entire renovation, as a renter, you don’t have to foot the bill. The best part is that you get to live in a new home without any hassle! 😎
10. HOA Fees
HOA fees don’t apply to every homeowner. Yet, those who want to live in areas with gated communities get stuck paying these fees.
There's a cost to maintaining the landscaping, community pool, and other amenities. As such, residents get billed upwards of $200 per month for these services.
Renters don’t have to worry about HOA fees. If their complex offers amenities, it’s usually included in the cost of the rent.
That concludes our article on expenses that renters get to miss out on (yay)! We’re glad you stuck around to find out the benefits of renting that homeowners don’t get to have. 😅
If you’re in the position of looking for a rental- stop right there! Lighthouse has a team of (free) experts that help guide you through the rental process. We’re always on a mission to help renters save even more money! That’s why we also offer a cash back service when you sign a new lease. Check us out here for more information. 😊