Rental Vs. Home Ownership

A defining moment in life your first time living alone after college. After four years (or more) of splitting rooms, apartments, and houses, you can finally strike out on your own to where ever your career took you. With this in mind, there are normally two different living options available: renting an apartment or buying a home.

In recent trends, new graduates and young workers have been choosing to rent apartments before making a home purchase. In other words, home ownership is down for millennials. One of the contributing factors is student loans. Studies have shown that student loan payments discourage young graduates from moving forward financially. This means the younger generation has been neglecting retirement funds and other important investments such as a home ownership.

One of the main driving factors is debt. With student loan payments, signing up for a mortgage is not an enticing path forward for many new workers. Given all of the extra costs of home ownership, it is no surprise that so many people opt for an apartment rental. Here is an comparison of the different costs associated with home ownership and apartment rental.

Home Ownership

A whole slew of upfront, recurring, and additional costs are associated with home ownership. It is more than enough to discourage a new graduate with their starting salary. Starting with the upfront expenses, right off the bat you have to pay a fee to show you are interested in the house; it is normally 3% of the house price.

On top of that, you have a down payment that will be some large sum since it is a percentage of the house price. You most likely need to pay an inspector to find issues with the house which then costs money fix those problems. You will have to pay a premium on home insurance. There are more cost associated with the mortgage, so it is safe to say there are plenty of upfront costs.

Recurring costs do not differ considerably with apartment rentals, but they are on average more expensive. The first and foremost expense is the monthly mortgage payment which depends on home price and mortgage terms. The other prominent expense is the insurance payments which comes every month. Property taxes are another expense that comes every year. Aside from these hefty expenses, classic utility payments recur every month which is pretty common.

There are plenty of special additional costs with home owning. One of those happens to be furnishing costs. There is a good chance your house will be empty, so you need to buy furniture to fill it up. You also need to pay for the move. On top of this all, there may be plenty of repairs to make. Overall, there are a ton of expenses with home ownership which is why it is so discouraging to graduates.

Rental Property

There is less to pay for when renting. There are only a few upfront costs to consider, but they are no-where near as expensive as buying a home. Renters are required to pay a security deposit up front as well as first month’s rent. This deposit is returned at the end of tenancy. Moving in and furnishing costs money, but this is normally less expensive than furnishing a house.

The recurring expenses are classic staples of renting. Monthly rent is a well-known expense, and the cost depends on the area. Just like a house, monthly utility payments are a necessity. If applicable, you may have to pay for renters insurance each month, but this insurance is much cheaper than home ownership.

Final Thoughts

There are definitely advantages and disadvantages associated with both home buying and renting. With homes, you can gain or lose money when you eventually sell it, but the overall costs that come with a home are expensive. By renting an apartment, you spend much less each month which makes other debt much more manageable, but there is no capital gain to an apartment that belongs to someone else. As a young millennial, renting an apartment is way more appealing, but home ownership has more potential for paying off later (but it also carries more risk).