3 LIVING OPTIONS: THEIR PROS AND CONS
August 30, 2022 | John J. Pasquini
Whether one decides to rent, buy a house, or a condominium, one’s lifestyle and finances will be affected. For anyone considering a home, assessing the pros and cons of house or condominium ownership or rental living is wise and prudent.
Houses
Owning a house is part of the American dream. It comes with its advantages and disadvantages.
Advantages to House Ownership
- House ownership is an excellent long-term investment choice. Since 2009, according to the Federal Reserve Bank of St. Louis, house prices have risen by 38%.
- House ownership builds equity as one pays down a mortgage.
- Despite recent increases, relatively low mortgage interest rates make house ownership desirable and affordable.
- There are tax benefits to owning a house. Mortgage interest, property tax, and home equality loans are tax deductible.
- Fixed mortgage rates (e.g., 30-year fixed-rate loans) are budget-friendly.
- House ownership provides for greater privacy and flexibility. Condominiums and rentals are more communal (e.g., shared fitness center, pool, etc.) in nature and do not provide the same kind of privacy. Owning a house provides the freedom of renovating and upgrading with ease.
- Owning a house provides for stability. Unlike a renter—often in a transitional living situation–a house owner is more likely to build lifelong ties to family, friends, and community.
Disadvantages to House Ownership
- Purchasing a house is expensive, with high upfront costs. Many banks require a minimum of 20% of the total loan value upfront. Other upfront expenses include home inspection costs, closing costs, title insurance, mortgage insurance, homeowners insurance, property taxes, and prepaid interest (i.e., points).
- Owning a house provides for stability, but stability comes with drawbacks. Picking up and moving to a new job location or making any kind of quick move is not simple.
- Houses come with high finance and sweat-energy costs, from lawn maintenance, bush trimming, gutter cleaning, and snow shoveling to air conditioning and roof leak repairs.
- While property values continue to rise in the long-run, short-term fluctuations can be troubling to those seeking to sell during times of high inflation, high-interest rates, or economic downturns. (COVID-19 has made the housing market tentative—as people continue to return to work, high inflation and higher mortgage rates are discouraging house ownership.)
Condominiums
Condominium living comes with its own pluses and minuses.
Advantages to Condo Living
- Condominiums are more affordable than houses. Because condominiums are smaller than single-family houses, they tend to be less costly to purchase. Furthermore, condominiums often give the owner a better value for the money (e.g., having an oceanfront view—which would otherwise be unaffordable in a house purchase).
- Condominiums require less maintenance and upkeep than a house. In the case of house ownership, the interior and exterior (including the land) are the direct responsibility of the house owner. Condominium owners are primarily responsible for the interior (i.e., condo homeowners pay homeowners insurance for the interior and a Homeowners Association [HOA] fee for the exterior).
- Condominiums are a means to downsizing and acquiring peace of mind as one ages—less cleaning and less concern over repairs and maintenance. Condominiums are often in gated communities secured by security officers and surveillance cameras, thereby giving the elderly a sense of safety.
- Condominiums provide a greater sense of community (e.g., movie and game nights, wine tastings, cookouts, etc.). And since condos tend to be located within entertainment and business districts, they provide easier access to attractions and transportation.
- Like rental apartments, condominiums have shared amenities like pools, fitness centers, tennis courts, etc. But unlike rental communities, condominium owners are not subject to substantial yearly rental increases.
Disadvantages to Condo Living
- Condominium owners have a mortgage, pay property taxes, and have HOA fees (on average, ranging from $100 to $1000 per month). Their HOA fees go toward building maintenance, cleaning services, and the use of common areas. Condominium associations sometimes charge a special assessment for special needs such as new roofs, asphalt repair, etc.
- Owners of condominiums have less privacy: Using the communal fitness center, pool, or tennis court or simply having to deal with the inconveniences of shared walls reduces privacy.
- Condominium owners have more restrictions placed upon them. Many condominium associations have age limits, pet restrictions, vehicle-type restrictions, parking limits, and so forth.
- Downsizing comes with advantages, but condominium downsizing—with its limited storage—has the disadvantage of ridding oneself of many cherished possessions.
- Since condominiums have no land, only living space, they also tend to have a lower appreciation value than a house.
Rentals
Rent has traditionally been for those who could not afford a house or condominium. In a post-COVID world, in an increasingly remote-work-friendly world, renting is becoming more popular.
Advantages to Renting
- Renting is generally more affordable and budget-friendly than owning a house or condominium.
- Rents are often less costly than retaining a mortgage.
- Building maintenance and repair costs are the obligations of the landlord.
- There are no property taxes.
- Renting does not require the same kind of down payment or upfront cost usually associated with house and condominium purchases. Renters typically pay a security deposit, which is often reimbursed upon departure.
- Renters pay less in insurance and utilities.
- Renters–due to lease terms–have greater freedom of movement. Once the lease is up, it is easy to pick up and go to wherever one desires.
- Renters have access to amenities such as pools, gyms, and community rooms that most would otherwise not have access to.
Disadvantages to Renting
- Rent increases can be drastic—often making the same apartment unaffordable.
- A rental is a home but not an asset or investment: You cannot build equity in a rental. And since it is not an owned asset, any change to the apartment requires the landlord’s approval.
- There are few tax benefits to renting (i.e., tax deductions).
- Many rentals have “no pet” or “pet limitation” policies (restrictions on size, kind, and number).
Assessing the pros and cons of moving and where to move is wise and prudent. Much stress and heartache can be avoided with a bit of planning.
*For those planning to relocate for business or lifestyle purposes, the safest approach to moving may begin with a temporary stay in a short-term rental such as an Airbnb or apartment hotel.
Sources: Fairweather, Daryl. (2021, March 31). Five Ways the Housing Market Will Change After the Pandemic. Redfin News. https://www.redfin.com/news/ways-housing-market-will-change-after-pandemic/; Morris, George. (2021, December 31). Advantages and Disadvantages of Buying a House. In Charge. https://www.incharge.org/housing/homebuyer-education/homeownership-guide/advantages-and-disadvantages-of-owning-a-home/; (2020, August 16). The Advantages and Disadvantages of Buying a Condo. Spacewire. https://www.extraspace.com/blog/moving/buying-selling-renting/pros-cons-buying-condo/; Haury, Amanda. (2022, April 20). 10 Reasons Why Renting Could Be Better Than Buying. Investopedia. https://www.investopedia.com/financial-edge/1112/reasons-renting-is-better-than-buying.aspx; Legrand, Lisett. (2019, October 31). Pros and Cons of Renting. First Alliance Credit Union. https://www.firstalliancecu.com/blog/pros-and-cons-of-renting-and-buying-a-home.