Episode 22: Tenant Perspective: Renting Vs Owning

Summary

Today's episode is all about perspective.  Tenants who rent may feel trapped and like owning a home is the best option, but is it really the best for YOU?  In this episode, we take a deep look into the flexibility and responsibilities of renting versus the ownership of a home, dealing with fluctuating mortgage and property tax payments, and MORE!

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Full Episode Transcription

Welcome to My Life as a Landlord, where we untangle all things housing and educate the curious. If

you're looking for some entertainment with some honest, awkward conversations, you've come to the

right show. I'm your host, Dr. Jennifer Salisbury. This is my life as a landlord. Welcome to it.

Hello. Hello. Welcome to my life as a landlord. Thank you so much for joining me today. I am Dr. Jen, your

rental coach, your tenant guru. Today's episode is all from the perspective of the tenant renting versus

owning. Careful, the grass is always greener. Today, we're going to talk about the differences of renting

versus owning. And sometimes we don't have a choice. But if you did have a choice, maybe you wouldn't

choose what you think we'll see. As a tenant, paying rent is usually your biggest bill. But owning a home

seems sometimes like an unattainable dream. And that can be for lots of reasons. Of course, it may

appear to a renter that owning a home would be, quote on quote, so much easier. But it depends on your

perspective. Normally, I do three points and then a call to action. But today we're going to be doing

renting versus owning. So let's talk about renting first. First of all, when you're renting to get into a

rental, there is an application process. You have to qualify, right? They talk about pay stubs and credit.

And you are going to view the unit, make sure the unit works for you. And there'll be a lease. You sign a

lease, usually with an addendum. And in that lease you promise to pay rent in exchange for a home, for

the use of a home, you promise to behave. But when you're living in that home, the rent is a set amount

of money, right? It's a set amount. You know what that rent amount is going to be every month or every

week, however you pay your rent. And of course that doesn't include things like rent increases, late fees,

things like that. I'm just talking just generically about rent payments. Your rent may or may not include

utilities. Some of them may be included, they may be separate. Maybe you have to put the electric

meter in your name or sometimes sewer trash can be different or maybe the landlord pays for that. But

the utilities can vary and they can be on what the lease sets up. And then throughout the year, maybe

your electric bill goes up or down based on the weather, right? Based on your usage of things. And

then as a renter, if there is something that needs repaired, guess what? You call the landlord. You call the

landlord's representative. Maybe it's your property manager, whichever. And that includes anything from

a broken appliance if your fridge breaks down or a roof leak or a broken pipe in the driveway, whatever

that may be, you've got somebody to call in the event of a mishap, which does happen, of course, when

you're living and using a unit or a home. Insurance for you as a tenant would be renters insurance, and

that covers your contents. Renters insurance is pretty easy to get, and it doesn't cost a whole lot of

money. The renter's insurance doesn't cover the structure, though, and so it's pretty inexpensive,

expensive. And then let's talk about timing. Timing of departure. At some point, you can end your stay in

that rental unit with proper notice to your landlord. Whatever proper notice is in your area. But overall

renting is relatively flexible regarding timing. The rent payment is fixed and your utilities, you can sort of

budget your utilities again based on the time of year. You can base on it. But as a renter, there's no

requirement to have cash in the bank and there's no requirement necessarily to have good credit. You can.

And I've rented to plenty of tenants that have had terrible credit. Why? Because life has happened to

them and they're starting over. Makes perfect sense. But they've got an income source and they've got

good character references and so we take a chance on them. But as a tenant, by and large renting is

flexible. It's a relatively set amount and there's no other real factors necessarily, right? There's no

requirement that you have to have a set amount of cash in the bank and there's no requirement that you

have to have super good credit. I know for tenant qualifications there is an aspect to credit in there.

But just for the sake of this argument, just move on and you'll see what I mean when we talk about

owning when you go into owning your own home, to get into that home, 1s first of all, you got to find a

home that is going to work for you. And then you make an offer, right? You make an offer with a realtor

there's a down payment aspect. There's probably going to be a lending aspect, a mortgage payment or

request in some way. Well, that down payment. You very likely are going to utilize savings, right?

You're going to utilize savings for that down payment or maybe someone is going to help you with

either a gift or another loan. But to get a mortgage to close on this home that you're looking to buy,

you're going to need credit. You're going to need to show that you're credit worthy. Your cash flow

history, your job, your pay stubs. If you've got pay stubs or if you've got investment income, you're going

to have to prove to that mortgagee that their investment with you in buying this home is a good

investment, that their money is going to be secure. And then of course to close, to actually close, you're

going to have to get an insurance binder. You'll transfer utilities, title insurance and then closing costs.

Property taxes will be prorated. Many of you know this already, but this is just to get into the home

versus getting into a rental. Little bit different qualification process, right? Because the owning of the

home is a lot more permanent. Right. When you close, you actually transfer a deed most of the time,

unless you're buying something on lease land, then you only transfer the improved months. But if you're

buying the home on a piece of property, which is what most of the parcels that you're going to buy are,

there is a deed that will say your name on it. Pretty incredible that it gets recorded that way while you're

living there. Unlike when you're renting your mortgage payments could vary. Right now interest rates are

going up and down. So unless you've locked in your mortgage payment, if you've got a variable rate,

your mortgage payment could vary. Could be really interesting, the different payments. And then of

course as an owner you've got maintenance that's fun stuff. Stuff like mowing lawns, shoveling snow,

garbage. And what about other things like property taxes? Based on the potential appreciation of your

home, your property taxes and the rate which you're charged, property taxes could go up. So you've got

to be really careful because your property taxes very likely will differ between from year to year. Your

payments will differ from year to year. So the budget that you start owning the home with very likely will

change as you own the home. Now ironically, your utilities, depending on how you set it up, when you're

the owner of the home, you pay all the utilities, right? But when you're the renter, depending on how

you've set it up with your landlord, you may or may not be paying the same utilities but the utility bills

are still there. Regardless as an owner, if there is a repair or some kind of an event like a broken

appliance or a roof leak, there's nobody to call, there's no landlord to call. It's all on you. You get to call

the repairman, you get to maybe call the insurance company. If it's bad enough, you need to make a

claim. That is all you right as an owner. So there is extra costs that you can't foresee coming as an owner

that you've got to really take into account here. 1s Insurance. As a renter, you pay just renters insurance

on the content. As an owner, you pay property insurance. Now most of the time that includes your

contents as well. But it's a much different policy and it's much more expensive than just renter insurance.

And then timing, timing of, let's say you're done with a house and you're over it. As a renter, you just

give proper notice, whatever it might be in your area, you give proper notice to your landlord. But if you

want to depart a home, well, now you've got to list the house for sale. It may or may not happen

quickly, depending on the real estate market in your area and depending on your appreciation or how

long you've held the home. Maybe you have a little bit of equity gain, but you could also have a loss.

Right? There's no guarantee that every asset is going to appreciate we saw that in the recession, 2009,

2010 recession, that there was significant losses and resulting foreclosures. But if you're going to depart a

home, it can happen that you could sell your home. So you want to make sure that if you're going to sell

your home, try to do it the best way that you possibly can. And if you do have a bit of equity gain, make

sure you are prepared to pay some, potentially some capital gains. If it's your personal residence, you're

very likely going to have not a capital gains liability. But you want to make sure if you have an equity

gain that you might have some cash to then roll into either your next home purchase or you might say,

you know what, I'm going to keep that cash in the bank. I'm. I'm actually going to rent for a while,

right? There's a lot of different costs that we talked about for renting. Renting is basically a known

quantity. But when you own, you've then got to have money in the bank to even get into a home.

Potentially. Money in the bank, cash in the bank. You've got to have good credit to qualify for a

mortgage if you're going to use a mortgage. And it's a very interesting dynamic because the costs of

owning vary so wildly. What happens if you close on a home and then a week later your fridge dies on

you? Well, guess what? You have to then figure out what you're going to do. Do you buy one from a

garage sale? Do you not have any money at all? Can you put one on a credit card? Go get a new one?

You've got to figure it out because there's no landlord to call. Very interesting perspective, renting versus

owning. I've watched several YouTube videos on different aspects. There's folks that have great paying

jobs. They could very well own a home, but they don't want to own a home at the moment. They want to

rent. Why? Because they know in a year or two from now that they're going to be traveling. And number

one, they want to save their money. But number two, they want to make sure that when it's time that they

can leave and go traveling. That all they have to do is give proper notice and then move their contents

into storage or sell them, whichever. Very interesting aspect. So be careful because the grass is not

always greener on the other side. Okay? So here's your call to action. If you have not yet read Robert

Kiyosaki's Rich Dad, Poor Dad, I highly recommend that you either go to Barnes and Noble if you've got

a brick and mortar bookstore and physically get the book or audible.com or blinkist if you're going to

listen to something. Rich dad, poor dad. In Rich Dad, Poor dad, he explains about cash flow. This is a

great book to follow up on this topic. He says straight up in it your personal house. If you own a personal

house and you're not making any cash flow from that house because you're living in it, it's a liability.

Because all the money goes out and you pay all that money going out, you don't have any help, right? 1s

Okay, so there it is. Episode 22. As a tenant, the grass is not always greener. Make sure you know the

rules between renting and owning, because it's not always better owning. Next episode number 23 as a

real estate developer, there is no roadmap, man. You got to fly by the seat of your pants and make sure

you know the rules. Thanks so much for joining me today. We'll see you next time.

Thank you for joining us this week. To view the complete show notes and all the links mentioned in today's episode,

visit our website www.mylifeasalandlord.com. If you're looking for educational resources for getting

into real estate investing, becoming a landlord, or even a better tenant, then I have a page on my website

to get you started looking for a solution to the pickle that you're in. I have suggestions for that, too. You

can throw your situation on my Facebook group, My Life Is a Landlord, and let our community help you

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podcast on, or you can sign up at www.mylifeasalandlord.com Thank you again for joining me, Dr.

Jennifer Salisbury, in this episode of My Life as a Landlord. I'll see you next time.