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Renters who are frustrated with hot housing headlines that seem like this is their last chance to buy a property are backed by reports that Rent payments currently exceed the average monthly mortgage payments. But comparing the cost of owning and renting on a monthly basis is not that straightforward as there are a number of hidden costs associated with owning a home. In fact, there are benefits to sticking to renting even when home prices are skyrocketing.
Why is the rent higher than the mortgage cost?
Commentators on this Reddit thread To put it best, “Your rent is the highest you will ever pay a month. While your mortgage is the lowest you’ll ever pay each month. ”Why should that be? Well, homeowners need to cover the cost of the expenses that a tenant does not have to pay, at least not directly:
- Property taxes: $ 2,471 per year, on average (and in some areas much more)
- Monthly HOA fees: $ 250 per month, on average
- Repairs and maintenance: $ 170 per month, on average
- Homeowner Insurance: $ 80 per month, on average
- Electricity bills: $ 200 per month, on average
- Private mortgage insurance: $ 160 per month, on average
- Lender obligation flood insurance: $ 61 per month, on average
Other possible fees could include: garbage collection, water and sewer service, pest control, tree pruning, facility maintenance, and earthquake insurance. These costs are of course still borne by the landlords, but many of them are baked into the rental costs.
Of course, as any weary renter knows, you can be stuck with a low-paying or otherwise cheap landlord who saves on repairs and pest control. Nonetheless, the cost is real and is on top of what an owner pays in mortgage payments (see for a more detailed breakdown this Lifehacker post).
Even so, pity is not required – homes are also assets that tend to increase in value, often over 10% annually, therefore, given the ongoing cost of owning them, they are quite valuable.
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Why renting isn’t that bad after all
Cost security and flexibility are underestimated aspects of renting. When you rent, you know exactly how much you will be spending monthly on housing. Unlike a homeowner, you don’t have to worry about a 30 year mortgage obligation, and you don’t have to pay surprising expenses like a new HVAC or boiler for a few thousand a pop – at least not directly. The other benefit of renting is that if you change jobs, expand your family, or find better, cheaper accommodation, it is much easier to move than owning a home. Of course, that doesn’t make renting cheaper, but it has its advantages.
This is how you can tell if your rent is too high
Research and compare rental rates for similar properties in the neighborhood you plan to live in and determine the average monthly rate for an apartment, the number of bedrooms, and the amenities you are looking for. So many landlords determine their own prices, so use your research as leverage to get around negotiate a lower monthly rent. If you don’t like the offer, you at least have the flexibility to look elsewhere.
Also worth mentioning here: If you are in arrears with your rental payments due to the pandemic, consider your rental support options as described in this Lifehacker post.
