Personal Real Estate

Being the King and Queen of the Castle

When you own a home, you can do whatever you want, with few limitations. You do have to obey the law of course, meaning abiding with noise restrictions, zoning laws, and the like, but that’s about it.

When you rent, you are living there at the pleasure of the owner, usually referred to as the landlord, and the word landlord is not used by accident. Landlords can pretty much impose any rules and restrictions they want, although most of them are reasonable, as they don’t want to alienate prospective renters too much.

However, you are basically living in someone else’s place and they can tell you what to do, who can live there, whether you can smoke, have pets, play music at certain times of day, how clean you have to keep the place, and numerous other things.

The landlord will cover normal maintenance, but how good they do with providing this or how long you have to wait to have something fixed or kept up can differ quite a bit. Since this is run as a business, they generally don’t like to spend money that they don’t really want to, so this can mean maintenance standards that may fall below people’s expectations.

Even if you want to pay for something fixed yourself, you often have to get permission to do so. While it would be unusual for this to be denied if you’re actually improving the rentability of the place, if your requests suit your tastes but may not be seen as suiting others, you may not get permission.

It is questionable why anyone would want to pay for renovations for instance if they weren’t planning on staying somewhere for a long time. Some people do rent long term but it’s not the ideal situation.

Often times, depending on where you live, landlords may be assessed higher property tax rates than homeowners, as the government may think these people are in a better position to pay more. Ultimately though, these additional costs get passed on to the renter, and anyone who thinks otherwise doesn’t understand basic economics.

If You Own, You Do Need to Maintain

One of the benefits that renting is supposed to have over home ownership is that the landlord is responsible for paying for the upkeep of the property, including routine things like lawn mowing and snow removal, if you live in an area that gets snow.

All of these costs are priced into your rent though, as landlords do not get these services for free, and aren’t in the business of charity so they won’t give them to you free either. There may be some savings based upon economies of scale or they may have their own maintenance people who work more cheaply than people you would hire, but the differences here aren’t significant.

Home ownership does require more planning though, as one needs to set aside a certain amount for this, although with condo ownership a certain amount is set aside by way of condo fees to cover maintaining the common areas of the property. Even in this case though, your unit may require maintenance and since this will be out of pocket, and therefore, you need a plan here to deal with these needs as they arise.

You do get the freedom though to devote whatever amount you like to this, and be as frugal or as generous as you want with this. Many people undergo significant renovations fairly often and you do get the benefit of the value added to the property, unlike with renting.

People who own their homes also have to deal with the property tax themselves as well, in addition to things like paying for water, and anything else that may be included in rents. You can usually get property tax included with your mortgage payment though, if you desire, and this does make it easy to budget for this.

Overall Costs of Owning versus Renting

Some people believe that it’s cheaper to rent than own, although this view comes from comparing apartment living to owning a detached home, or from comparing more expensive properties that are bought to cheaper ones that are rented. Detached homes cost more generally, so of course they will often be more expensive, both in terms of the cost of buying the property and the upkeep.

Comparing properties of similar value, unless you are renting from someone who isn’t even keeping track of things, we may expect that in all cases it will be at least as cheap to buy as to rent. The costs of buying do not have profit added in, and some rentals may not as well, but it is unreasonable to expect that someone is renting and not even covering their expenses with rent.

On the contrary, people do look to make at least a little money from renting out a property, and this extra money is their profit, and this profit is what it costs you extra to rent versus own. If, for instance, it costs $1500 a month for everything, the landlord will want at least that much for you, and usually more.

Those on a budget who may not be able to afford a certain home, and maybe may not be able to afford any detached home of suitable quality in their market, one can still consider buying an apartment, where you’re almost assured of getting more bang for the buck.

There are some situations where one only has a certain amount to spend and there may not be any homes or apartments that fit their budget, and therefore they may have to settle for a lower quality rental unit for now, but if one does have the means to buy, it’s almost always worth buying over renting.

Owning Personal Real Estate Builds Wealth, Renting Does Not

The biggest reason why owning one’s own home is preferable is the equity that gets built up over time. You are not only paying their mortgage, but as the property appreciates, they are the ones building the wealth.

If your unit goes up in value by, say, $20,000, then the owner has made the $20,000, where you could have made the money off the investment. They invested though, you didn’t, and you cannot expect to profit from investments if you do not invest.

Real estate is a fabulous investment generally over time, and the real beauty of this is that you only have to put up a small percentage of the cost of the investment and profit from the increase in value of the entire investment. This really is leveraged investing, without the significant risks or requiring a lot of skill like most leveraged investments come with.

If you end up staying there for the time it takes to pay off the mortgage, you then own the property free and clear and also see it usually go up in value a lot. So, a $100,000 home you purchased 25 years ago may be worth several hundred thousand today.

If you rented all that time, all you’d be walking away with is your damage deposit, if you’re lucky enough to get it back. Meanwhile, the landlord has made several hundred thousand dollars off of you over this time, so they are pretty happy, but you should not be.

When you add in the fact that mortgage payments are based upon the value of money at the time of purchase, where rent payments go up and up with inflation, this makes owning your own home even more appealing.

Your $1000 a month mortgage payment now will still be somewhere in the area of $1000 in 20 years, and $1000 at that time will be worth much less than it is now, relative to your income then, due to inflation. Your rent payment for a comparable place by then will be much higher, even two to three times higher.

So, if one has the means to own, whether that’s your own home or another property you’re planning on living in part time, one should seriously consider buying. If one does not presently have the ability to buy, it makes a lot of sense to work hard toward achieving this ability, because there are too many benefits here to ignore.