Is Renting Cheaper Than Buying: Find Tips and Answers

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Is Renting Cheaper than Buying?

For decades, the traditional advice has been to buy a home. Previous generations considered real estate to be the safest investment while renting was seen as throwing away money. And even today, many people consider homeownership to be synonymous with the American dream.

But buying a home is a major life decision and not one to be made lightly. There are many aspects to consider. What are you looking for? There’s the number of bedrooms, square footage, location, and of course, the big question: money.

Faced with the realities of their finances, many people are opting to rent instead of buy. But is renting cheaper than buying, and is it the best choice for you?

To help you decide, we’ll break down the costs involved in both options, plus take a look at some of the other pros and cons.

Is Renting Cheaper Than Buying a Home

Cost of Moving In

Before you compare the monthly payments of rent versus a mortgage, you should consider the different costs involved just to move in.

Moving into a House

According to the National Association of Realtors, the national median home price in March 2021 was $329,1000. The typical house down payment is 7%. This means that, on average, you’ll need $23,037 to put towards your down payment.

Don’t have that much cash handy? For most loans, the minimum down payment is 3%, which would equal $9,873.

On top of that, you’ll be responsible for closing costs such as application fees, HOA payments, insurance, property taxes, and more.

These generally come out to be anywhere between 3% and 5% of the sales price. Using NAR’s median home price, that means you’ll need at least another $9,873 and possibly as much as $16,455 to close on your home.

Some lenders will allow you to roll your closing costs into a loan, which can make this more affordable. Keep in mind, though, if your closing costs become part of your loan you’ll have to pay interest.

Moving into a Rental

The average monthly rent is $1,124. Most renters will need to put down three months in rental costs: first, last, and one month’s deposit. This would come out to $3,372, much less than the down payment and closing costs on a house.

If you’re having trouble saving enough to move into a house, renting is probably a more feasible option.

Monthly Costs

If you have the money you need for a down payment on a house, then the next thing to weigh is the monthly mortgage payments versus monthly rent.

Mortgage Payments

According to the U.S. Census Bureau, the median monthly mortgage payment is $1,487 (June 2021).

However, this will be affected by many different factors, and your monthly mortgage payment can end up being hundreds of dollars higher or lower.

Down Payment

The more you put towards your down payment, the less you’ll be paying off. This can greatly lower your monthly payment.

Mortgage Rate

The lower the interest rate, the lower your payment. Timing your home purchase for when rates are lower can save you well over $100 per month.

Here’s an example: a $300,000 mortgage at a 3.5% interest rate = $1,347 per month. At a 2.5% interest rate, it’s lowered to $1,185 per month. The mortgage program you choose can be a key consideration.

Location

Where you buy a home will have a huge impact, possibly the biggest impact, on your monthly mortgage payment. Housing prices vary greatly from city to city, or even from one neighborhood to another in the same city.

Market Trends

You also need to consider the market situation. Buying a home during a seller’s market means you’ll be paying top dollar for your home, driving up your monthly payments. During a buyer’s market, however, you’ll be able to negotiate a better price and reduce your payments.

Rental Prices

As we saw earlier, the average monthly rent is $1,124.

But keep in mind unless you sign a longer lease or live in a rent-controlled unit, your landlord can raise the rent each time you renew your lease. They can also raise the rent if your lease expires and you decide to rent on a month-to-month basis while you find your next home.

In most areas, rent increases are governed by local laws or statutes. For example, your landlord can’t increase the rent in the middle of your lease. But, they may increase it with a month-to-month lease with 30 days’ notice in writing. Some states may even require certified mail.

And if your rent increases, you might have to add more money to your security deposit. Security deposits are usually calculated as a multiple of the rent (i.e. one month rent, or double the monthly rent). So when the rent goes up, your landlord may ask you to add to your security deposit as one of the terms of renewing the rental agreement.

Other Costs

There are other costs involved, too, besides a monthly mortgage or rental payment.

If you own your home, you can expect, at minimum, the following additional costs:

  • Utilities
  • HOA fees (if applicable)
  • Repairs
  • Maintenance
  • Landscaping
  • Pest control

When you rent, you’re typically only responsible for utilities. And even then, many rentals include some of the utilities, especially cable or WiFi services. Other expenses, including repairing or replacing appliances, will be taken care of by the landlord or management company.

Moving Out

Let’s finish the homeownership cycle by talking about the expenses involved in moving out.

Moving out of a House

When you sell a home, there are a few different items that will affect your potential costs

First, if you’re lucky, your home has appreciated in value. You’ll be able to sell it for a profit. In general, home values increase over time, so the longer you live there, the more you might make on a sale. However, if you bought high and are forced to sell low, you might come out even… or worse.

You’ll also have quite a few costs at closing. In most cases, you’ll be responsible for paying the real estate agent’s commission fees, which are 5% to 6%.

You’ll also have other closing costs, such as a title search, inspection, transfer taxes, and more. These costs usually come to somewhere between 2% and 4% of the home value.

Moving out of a Rental

Here, renters have it easy. In general, all you’ll need to do is let your landlord know you won’t renew your lease, and you’re set. But there are a couple of other things to keep in mind.

  • Read your rental agreement carefully to make sure you meet the “prior notice” requirements for not renewing your rental. Some leases require 60 or even 90 days advance notice; some might require written notice.
  • Your rental will need to be in good condition, or your landlord might refuse to return your deposit.
  • If you’re canceling mid-lease, due to a sudden relocation, there will most likely be a penalty. Check your contract; you might be responsible for several months of rent.

Renting vs. Buying

So, in the end, is renting cheaper than buying? In all the stages we’ve looked at, from moving in to monthly costs to moving out, renting is typically cheaper than buying a house.

If you’re only looking at dollars, then renting is the best way to save money on housing. But, when you start looking at other factors — investment value, possible tax breaks, building equity, sense of community — homeownership might still be the best choice for you.

And remember, each area is different, so research your local market to be sure of average home and rental prices before you make any financial decisions.

About the author: The above article about renting is cheaper than buying was written by Anna Compagine Cohen. Anna is a Content Writer at UpNest, where agents compete and you win. Anna has an extensive background in the real estate industry. She is a published author who specializes in real estate, personal finance, travel, and wellness. When she’s not writing, Anna can be found reading, walking on the beach, or spoiling her teenagers and their rescue dogs.

 

Effective Ways To Communicate With Tenants

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How Landlord Can Communicate With Tenants

In any business agreement, solid communication is crucial between all parties. While it may seem obvious, even the simplest forms of communication can minimize tension and ensure mutual satisfaction in any formal business relationship.

The real estate industry is no exception. From cash home buyers to general contractors, the ability to communicate effectively can make or break a relationship. 

The relationship between tenants and landlords is arguably the most delicate. There are emotions and dollars signed involved at all times. This type of agreement isn’t something you can leave at the office. It involves a substantial asset on one side and someone’s place of residence on the other.

Whichever side of the agreement you’re on, it’s important to make sure you’re using whatever tools are at your disposal to make communication as seamless as possible. Whether renting an apartment or home, consumers value a landlord who communicated effectively.

Landlords in particular have a lot to gain from using these tools. Property damage and late rent payments are two of the most common disputes between landlords and tenants.

If you’re a landlord, here are some effective ways to communicate with your tenants to help avoid mishaps later.

Landlords Communicate With Tenants

Property Management Apps

As technology becomes more ingrained in the real estate industry, smartphone applications are becoming a more common platform for communication. They label themselves as a one-stop-shop for landlords and tenants to hash out any notable issues.

One benefit of these apps is to keep all communications in one location. Juggling emails, text messages, voicemails, and letters can get old fast. By using an app, you can organize all communication while keeping it archived in the app for later reference when needed.

You likely won’t see these apps used as much for landlords that only own one or two properties. The true benefit is for landlords that own large multi-unit buildings, or a large portfolio of buildings.

Property managers usually insist on using some type of app for communicating with tenants. Some apps include a feature that allows rent to be collected through it. 

Landlords typically hear from tenants the most when there is something that needs to be repaired. Service requests can be submitted and handled directly from these apps. This allows service requests to be documents and increases response time back to the tenant.

Although technology can be scary, it is worth it to improve the communication between landlords and tenants.

Social Media

A great way to stay connected with your tenants without spending too much money on apps or other technology is through social media. You can use the chat function to message tenants personally and deliver news or updates about the property. Similar to a newsletter, this is another way to get the word out to the masses.

To create a more formal and intimate online environment for your tenants, you can create a Facebook group. Here, your tenants can communicate with each other and potentially solve any problems they might have before it escalates to your attention. This can save you both time and effort when communicating with tenants. However, make sure your tenants are technologically savvy enough to use social media routinely. 

Social media comes with additional communication benefits. People are sometimes more likely to check their Facebook notifications versus email notifications. For landlords that need to get a hold of their tenants as soon as possible, these platforms can help. It can also help issues get solved faster. 

For example, if you have a new tenant that is unsure how to use or access certain facilities in your large commercial building, other tenants can sometimes provide the answer. Especially if there are questions that get asked multiple times, a tenant can look back into different chat threads to uncover the answer. There is power in numbers. Allow your tenants to help each other out, and ultimately improve the communication flow between you and them.

Slack

Similar to creating a group on Facebook to communicate with tenants, Slack can be a great place for people to communicate within the same space. Slack is an online platform that you can also access on your smartphone. Its primary purpose is to streamline communication for groups, teams, or companies that are working on projects. 

Creating a slack group wouldn’t be necessary for every landlord. Your plan may be to buy a house and only own one for the rest of your investing career. If you only have one tenant, you won’t need Slack. It would be much more useful for landlords who own large multi-unit buildings. More specifically, if the tenants are a younger demographic that is accustomed to using technology for daily communication, Slack could solve countless communication issues. 

When communicating on this platform, landlords and tenants can track conversations and get live updates on important matters regarding a property. If there is an emergency, slack is a great way to notify a group of people instantly through their phones.

Do you plan to ask your tenant to do certain repairs on your property themself? You can track the progress of the home repairs through Slack. Pictures and video files are easy to upload. This ensures that the renovations are done on time, and to the degree that you expect. 

Tenant Newsletter

This may seem old fashioned, but many businesses still use newsletters to keep their customers up to date with news, events, and offers. Newsletters can offer a similar utility to landlords. If you own a property that has +50 units, a newsletter is perfect for keeping tenants up to date on things like scheduled maintenance. 

Newsletters are also great for communities owned by the same owner or company. Senior living communities often use newsletters to announce fun events going on for the residents. You can update everyone at the same time, and include an FAQ to help residents find answers to commonly asked questions.

Newsletters don’t just dispense news, however. They’re also great for creating a sense of community within your property. It may seem unnecessary, but fostering a community means keeping tenants that actually care about your property, and go out of their way to take care of it.

A vacancy is a landlord’s worst enemy. By keeping your tenants satisfied and engaged, you increase the likelihood of them renewing their lease or continuing to live in that community.

Depictions in the media of landlords as rent collectors who bang on doors are long outdated. Use these methods of communication to not just communicate with your tenants, but help avoid issues down the road by keeping everyone informed.

Hopefully, you have enjoyed these tips on effectively communicating with tenants as a landlord.