While car ownership has been a cultural milestone in our society, this tradition is diminishing with a trend toward renting or borrowing rather than owning. This situation is partially related to fewer teenagers opting to obtain a driver’s license. Also, fewer young people are buying homes, giving preference to the flexibility of renting.
The owning of “stuff” is shifting toward “decluttering” and choosing instead to rent items as needed. A strong belief that overconsumption is putting our planet at risk is driving the rise of the sharing economy. In addition, there is a growing trust to value exchanging items with “real people” rather than buying from major companies.
In addition to Zipcar, which rents vehicles by the hour, other rental business models include:
Ann Taylor’s Infinite Style service that allows a person, for a $95 monthly fee, to rent up to three garments at a time.
SnapGoods rents cameras, power tools and home appliances, such as blenders.
Frankfurt airport has a service that allows travelers to store winter coats when flying to warmer climates. Other businesses are considering a service to rent cold weather clothing to travelers arriving from tropical areas.
Since about one-third of new vehicles are leased, Cadillac created the “Book By Cadillac” program allowing a person to exchange up to 18 vehicles a year.
The many empty stores in malls create opportunities for “swap meets” and “rental fairs” for various products, using these spaces to also build connections in the local community.
For additional information on renting instead of buying, click here.
Have students locate examples of sharing economy businesses and rental companies in your community and online.
Have students talk to others to obtain ideas for new types of rental businesses.
What do you believe are the benefits and drawbacks of renting instead of owning?
Describe actions that might be taken to determine needs and ideas for rental businesses in a community.
While home ownership is often promoted as part of the “American Dream” and a sound financial decision, another point of view might be considered. Home ownership may not be for everyone when considering these drawbacks:
Home ownership can be a money drain. Mortgage payments and other costs, such as property taxes, maintenance, repair, insurance, and utilities can add up to a significant portion of a household budget.
The mortgage tax deduction may not be worth it. If you do not itemize on your taxes, you will not get the benefit of this deduction.
Consider the “rent-price ratio.” This analysis is determined by dividing the average home sale price by the average annual rent. A ratio of 1 to 15 is considered a range when it is better to buy than rent. Between 16 to 20, you are getting in to risky buy territory. Over 21, it may be better to rent than buy. Be sure to also consider how much space you need. Homes are usually larger than apartments.
People often buy a larger house than needed, resulting in higher mortgage, insurance, energy, and maintenance costs as well as higher property taxes.
For additional information on the financial drawbacks of home ownership, click here.
Have students ask homeowners for suggestions they would offer to people planning to buy.
Have students create a financial analysis comparing renting and buying for comparable housing.
What factors might you overlooked when deciding to buy a home?
How you decide whether to rent or buy your housing?
While more people are renting in recent years due to various economic and household situations, home ownership is still a financial goal for many. A financial comparison between renting and buying often overlooks various factors. An online calculator may be used to consider buying items such as the opportunity cost of investing your down payment (along with the taxes on capital gains), condo or home association fees, maintenance costs, and, of course, the tax benefits of property taxes and mortgage interest. On the rental side, the calculator considers initial costs (such as a security deposit and any broker’s fee) along with the opportunity costs of the initial costs and recurring costs, such as renter’s insurance.
For additional information on calculating the renting vs. buying your home, click here.
Have students ask people to describe factors that affected whether they own or rent their housing.
Have students conduct a personal financial analysis for renting and buying a place to live.
What are benefits and drawbacks of renting and buying a place to live?
Describe financial factors that might be overlooked when comparing renting and buying a place to live.
“While our original $150,000–$170,000 price range would have put our housing costs at a manageable 30% of our total income, springing for a $200,000 loan shot that number up to just shy of 50%.“
For many people, a logical step after completing college is often purchasing a home and inching closer to the American dream. And yet, there are pitfalls to obtaining a home that can lead to financial stress and the inability to reach important short-term and long-term financial goals.
This article describes how one couple took all the right steps to prepare for a home purchase, but eventually decided to purchase a home that cost more than they planned to spend on housing. The reason was simple: They fell in love with a home that was too expensive when compared to their total income. The article continues to describe what happens next in their attempt to regain their financial health.
“The average renter now spends 30% of their income on rent, up from a longtime average of about 25%, according to Zillow.”
Over the past year, average salaries have increased 1.8 percent. At the same time, the average rental cost for apartments, houses, condos, and other housing has risen 7 percent.
The Neighborhood Law Clinic at the University of Wisconsin Law School estimates that several million families a year face evictions nationwide. In fact, for many tenants, an unexpected emergency or unexpected expense can lead to eviction. Most often, evicted tenants face a very difficult time finding a new home that is often in a different neighborhood or a home that is not as nice as their last home.
While the major reason for a tenant’s eviction is not paying the rent, some landlords will look for minor violations like loud noise or having a pet when there is a no pet policy to evict tenants. Then, landlords will rent to a new tenant that is willing (and able) to pay higher rent. In some cases, the owner of the rental property will sell the property or convert the property to condos.
You may want to use the information in this blog post and the original article to
Discuss the importance of choosing a housing option that you can afford.
Stress the importance of budgeting for housing and other major expenses and establishing an emergency fund.
While most everyone wants a nice, safe place to call home. What factors affect your choice when choosing an apartment, condo, or house to rent or buy?
Does the fact that the average tenant spends 25 to 30 percent of their income on rent and that there are no tax advantages or equity buildup when you rent, encourage you to purchase your own home? Justify your decision to rent or buy.