Put aside the idea that you must have a home. I am convinced that a group of real estate agents or builders’ organizations played a role in instilling the idea that home ownership is an essential component of the realization of the American Dream. Last month, my husband and I closed our 10th home. Some homes turned out to be a fair investment, while others were gigantic financial flop.
If higher prices and higher interest rates make you sit far from home searching in 2022, that’s okay. There are many ways renting can be better for your bank account this year. Here are some of them
1. Loss of amenities
One of the main reasons we decided not to buy a home when we lived in Northern California was that we would have to give up so much to become homeowners. Not only would Northern California house prices make us a poor house, but the apartment we were renting was in a really nice place. Just outside the building there was a great swimming pool and hot tub. A block away was a great sushi restaurant, and we were easily able to walk to the live entertainment venues.
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If real estate is all about location, location and location, our loft apartment was in a location that is hard to replicate.
If your current rental situation offers a gym, pool, sand volleyball court, or other amenity that you usually have to pay for, you may want to save your money.
2. No repair or maintenance costs
When your rental space’s garbage disposal breaks or a baseball breaks a window, it can be annoying, but the repair expenses don’t fall on you. To give you an idea of the cost of repair and maintenance, American Family Insurance offers this advice:
- Use the “square-foot rule”. The square foot rule states that in order to budget for home maintenance, you should set aside $1 per square foot of livable space. So, if you have a 2,100-square-foot home, you’ll need $2,100, or $175, a month.
- Set the “10% rule”. According to the insurance company, homeowners must put 10% of their mortgage, 10% of their taxes, and 10% of their premiums into an account designated to cover maintenance costs. Let’s say your mortgage is $2,000 a month, taxes are $500, and your total insurance premiums are $200. This means that you will need to save an additional $270 each month ($200 + $50 + $20).
Not quite ready to spend a lot of preparation for maintenance issues that haven’t popped up yet? Rent is the answer.
3. Cheapest insurance
Because we currently own a home, our mortgage company requires us to carry homeowners insurance. We have an insurance policy for all the bells and whistles, including earthquake and blackout insurance. Our current policy runs around $200 per month.
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When we rent, we usually pay between $60 and $70 per month for renters insurance. Renters insurance exists to protect our personal belongings in the event of danger, such as fire or storm damage. It does not protect the house or apartment (it is up to the owner), but it promises to replace our personal belongings if something goes wrong.
When you’re trying to set aside money for a future goal or pump money into your rainy day, renters insurance leaves you with more.
When we lost money on a house, it was due to the fact that we had to move in to get a job. Even in the middle of the Great Recession, we would have been better off waiting to sell our home. We were moving around the country, and the idea of holding on to that house while finding a new place to live was daunting. Expenses could have been out of our comfort zone.
The nice thing about renting is the ability to give notice and leave when the time is right. Although we’ve always had a lease, we either planned around when the lease would end, or my husband negotiated with his employer to cover the lease termination fee.
If we had been renters in 2008 rather than homeowners, we would have saved at least $35,000. Once the market turned upside down, and we were vying with foreclosures to get a buyer’s attention, we were lucky to sell our house. Even then, we had to make a large closing check to cover the difference between what we owed on the house and the much lower price the buyer was willing to pay.
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Owning a home has benefits, but that doesn’t mean it’s right for everyone. And even if it works for you, it won’t happen this year if it’s not in your best interest.
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