In 2014 renters paid $441 billion in rent, an increase of 4.9% from the year prior. On average it was an increase of $26 per month, but some counties saw a much larger increase in rent. In San Francisco renters paid an increase of over 14% of their already expensive rental prices. Let’s examine the costs of renting and buying to analyze what is a more affordable option.
The largest demographic of renters is the Millennial generation, who is anyone born between 1977 and 1992. They are sad with a rent that consumes about 30% of the median household income and student loan payments that amount to a mortgage payment in itself. Due to such large payments consuming so much of their monthly income many renters have trouble saving money for a downpayment or getting qualified for a mortgage.
Costs of Renting
- Monthly payment of rent is on average higher than a mortgage payment.
- The money spent of rent is not building any equity, it is just money lost each month.
- Rental prices rise along with inflation, and typically rise quicker than incomes.
- Renters may find themselves in a higher tax bracket due to loss of tax deduction they’d receive from interest they pay on a mortgage.
Costs of Owning
- Homeowners must pay property taxes every year and homeowners insurance is much more expensive than renter’s insurance.
- There are greater risks associated with owning. There is much more responsibility and owners can lose money if their home decreases in value.
- Homeowners must pay for their own maintenance. No more calling the landlord to fix the broken garbage disposal.
- Homeowner’s that need private mortgage insurance pay a couple hundred dollars more each month.
- Homeowner Association dues are another cost associated with homeownership.
Overall, owning a home is cheaper on average than renting. The opportunity cost of renting in addition to rising rental rates year by year makes it a much more expensive alternative. If you are looking for expert guidance on the costs of renting and buying to analyze what is a more affordable option, contact Aceland Mortgage.