Wondering if you should rent or buy a home?
A big part of the decision to rent a house versus buy a house is based on emotional factors — at first.
But in the end, most people ultimately base their decision on what will be the cheapest over the long term.
To help you determine if you can really afford to buy a home — instead of renting one — here are 12 hidden costs that most people forget to consider when punching the numbers and deciding to rent vs buy.
Use them to decide whether buying a home is more feasible for you than renting a home.
Hidden Costs: Buying vs Renting A House
Whether buying your own home or renting one is best has been a subject of much debate.
The truth is there’s no single answer.
A large part of the decision is based on intangible factors — such as being able to claim a home as your own, or having the freedom to move anywhere you want at any time as a renter.
When it comes to the cost of buying vs renting, there are only 2 to 4 additional costs that routinely come with renting a house or an apartment:
- Security deposit – good renters typically get this fee back, but don’t count on it
- Renter’s insurance – not everyone buys it, but you should
- Parking – depending on where you live
- Pet deposit – depending on if you have pets
On the other hand, there are a slew of hidden costs associated with buying a home.
For most people, the final decision comes down to the numbers — so don’t forget to consider these when deciding whether to rent or buy:
#1 – Insurance
Whether you rent or buy a house, it’s a good idea to have insurance to cover the replacement value of your personal property inside the residence — in the event of a fire, burglary, or disaster.
Insurance coverage for your personal belongings alone is often very inexpensive.
If you buy a house, then you also want to have the structure itself insured — unless you’d be able to afford to rebuild it if your home were ever destroyed.
Insurance coverage for the entire structure is (obviously) much more expensive.
#2 – Utilities
As a renter, your utility bills would be significantly lower — especially in an apartment.
Often, landlords include some or all of your utilities in the monthly rent. Likewise, many apartment complexes include at least some utilities in the rent. Water and trash removal are the most commonly included, and heat is sometimes provided in colder climates.
As a homeowner, your utility bills will be significantly higher due to the larger size, no surrounding units to provide extra insulation, and exterior lighting and landscaping features — to name just a few reasons.
In addition, as a homeowner you will need to pay each bill separately, rather than as a lump sum each month. And you should be aware that things like trash removal are often charged as a tax assessment.
Here’s how to estimate the cost of utilities.
#3 – Homeowners’ Association / Condo Fees
Many homeowner associations charge a monthly maintenance fee that goes towards maintaining common areas — such as swimming pools, clubhouses, private streets, walkways, and other amenities.
These fees are not optional. By choosing to live there, you agree to pay the fees, and the association can even place a lien on your property if they aren’t paid.
You’ll want to research these fees carefully — because high-maintenance properties (like beachfront homes) and upscale neighborhoods often charge fees that are likely to approach local rent rates.
#4 – Property Tax
Each year, the local government requires the homeowner to pay property taxes on the house.
Generally speaking, less-populated areas tend to have lower property taxes — anywhere from 1% to 10%, depending on the location.
- If you’re renting a home, the landlord will simply pass these taxes onto you in the form of higher rent.
- If you’re buying a home, then you’ll need to research the tax rates in the area to know for sure. (You can also find this information on Zillow.)
Since home values are typically much higher than the value of a single rental unit, property taxes on a single-family home may equate to a good portion of what it would take to rent an apartment in the same area.
#5 – Changing Property Values
Both homeowners and renters are subject to changing property values.
As a renter, the local property values will affect whether your rent will go up or down and will come into play each time your lease is up for renewal.
As a homeowner, if you need to sell your home due to a new job while the market is down, you will risk taking a substantial loss. Even if you stay in the home for life, the property values will still affect what you pay in property taxes each year and the overall quality of the neighborhood.
You can’t control whether property values will change, but the standard advice is to only buy a home if you expect to stay there for 5 to 10 years.
#6 – Maintenance & Repairs
Maintenance is one of the biggest differences between buying vs renting a home.
When you’re renting, getting something fixed is usually just a phone call away. Unless you’ve caused the damage, you typically don’t have to pay for any repairs. The landlord takes care of everything.
When you’re a homeowner, you have to pay for and arrange for any repairs. In addition to possibly being faced with a several thousand dollar bill to replace a major appliance, you’ll also need to research which replacement to get or what repairs to make — as well as find someone reliable to do the work.
The age of the house and its structural integrity will determine how soon and how often the home will need repairs. An older home will need more frequent repairs and upkeep.
Here’s how much you should budget for annual home repairs and maintenance.
#7 – Appliances
When you’re renting a home, all of the appliances are typically included. The only downside is the fact that you have to live with the size and quality of the appliances that are there. To save money, landlords often leave old, outdated appliances in their rentals — until they are completely worn out.
When you’re buying a home…
- Sometimes a new home does not include major appliances — like the refrigerator, dishwasher, washer, dryer. The cost to buy those things can quickly add up, so you’ll want to know ahead of time if the house includes the appliances or not. In fact, if the appliances are not included, you can ask for a lower the price on the home — use it as a bargaining item.
- On the other hand, if it’s an older home and the appliances are included, just know that those appliances are likely to wear out, break down, and need to be repaired or replaced before too long. So keep in mind the age of those appliances when you’re figuring out your budget to buy a home.
#8 – Security & Safety Features
Whether you rent or buy…
- As soon as you move in, you’ll want to make sure that the house is secure and safe to stay in overnight.
- Check all of the smoke alarms and make sure they’re working properly. You should replace all of the old batteries with new ones — just to be safe.
- If the house doesn’t have carbon monoxide detectors, you should install one on every level of the home. Carbon monoxide poisoning is not something to mess with, and yet you hear of it happening more often than ever these days.
Finally, if you’re buying vs renting, then you’ll also want to replace all of the exterior door locks in the home (unless it’s a brand new home and you’re the very first owner) — so the old keys will no longer work. Even if the previous owner has assured you that they gave you all of their keys, it’s impossible to know if they forgot about lost or stolen keys, as well as keys that they’ve given to relatives or pet sitters in the past.
Here’s how much it costs to re-key the exterior door locks in your house.
#9 – Landscaping
If you’re renting, then there won’t be any cost for landscaping. Zip. Zilch. Nada.
If you’re buying, and this is your first home, then you probably don’t realize the price that comes with having a well-manicured lawn and exterior home features.
There’s more to your home’s exterior landscape than simply mowing the lawn. Some examples:
- A single tree — for shade or decor — can cost a couple hundred dollars. (Unless you buy it when it’s so small that it won’t be of any real value until it’s a a few years old.)
- On the other hand, the cost to remove an unwanted tree can range from hundreds to thousands of dollars. (Which could come into play if lightning strikes or wind damages any of the trees on your property.)
- You will also need to do seasonal weeding, feeding, and pest control to keep your landscape looking healthy year round. Depending on the size of your lawn, that can cost anywhere from several hundred dollars to a few thousand dollars every year.
It’s wise to consult with a professional landscaper before you sign any papers on a new home — so you’ll know the potential price tag of your new lawn & landscape.
#10 – Cleaning Costs
It’s no secret that renters don’t care much about deep-cleaning the rental property that they live in. Unless you’re a clean-freak, then you really don’t have to invest much money in keeping your rental home clean and tidy.
However, if you’re buying a home, there are numerous things that need to be cleaned and maintained — if you want them to last long enough to get your money’s worth out of them.
Here are a few things that will need to be deep-cleaned or tuned-up at least once a year when you buy a home:
So be sure to factor in the annual costs that will be required to keep those things working efficiently.
#11 – Moving Costs
Your moving costs should also be considered — even though people normally don’t think about this expense ahead of time.
When buying a home, the closing costs, costs related to searching for a home, and actual moving costs might add up to several months to 1 year’s worth of rent.
When renting a home, the costs are usually limited to paying movers (or enlisting friends to help). However, renters do also have the risk of having to move more frequently — due to bad luck with landlords, increased rent costs, or a property being sold to someone who will no longer rent it out.
#12 – Interior Decor
When you’re renting, you don’t have much say in terms of what the inside of the house looks like.
On the other hand, when you’re buying, the cost to make the home fit your style and personality in terms of decor and furnishings is one of the biggest hidden costs of home ownership. This could range from undergoing a whole house remodel, renovating a single room or two (like the bathroom and kitchen), or giving the house a simple facelift with some new flooring or paint.
If you’re content with the current flooring and paint color schemes inside the home you’re buying, then great — that’s one expense in your favor. But if not, then you’ll need to:
- Determine which rooms you’re going to repaint (and their actual sizes), and include that cost in your budget before you buy a home. Keep in mind, the best time to paint is when the house is completely empty. The task goes much faster, and you won’t have to worry about covering everything with a drop cloth to avoid spills and splatters!
- Decide which rooms need to be re-carpeted and/or which ones you want new flooring in (hardwood, laminate, tile, etc). You’ll definitely want to take care of the new flooring before you move in. It makes the job go so much more quickly, and there’s much less mess when the rooms are empty.
Here are some helpful tips for decorating your first home:
Summary: Buying vs Renting
The bottom line is… if you’re thinking about buying your first home vs renting, there are some hidden costs of home ownership that you might not have been aware of before now.
Even though a house may seem to fit your budget on paper, when you consider all of the other aspects of home ownership that cost money, you may need to re-evaluate your budget to make sure that you can really afford to buy a home at this time.
Above, I’ve listed some of the most common sources of financial drain that may not be apparent at first glance. Such things could put buying a new home out of your price range and make renting seem much more appealing.
When you’re aware of all the hidden costs that typically surprise new homeowners, then you can more accurately calculate how much house you can afford. The perfect home will be much more enjoyable if you’re not constantly worried about unexpected bills.
Here’s a helpful Rent vs Buy Calculator from Trulia.
More About Buying vs Renting
In addition to the links above, here are additional resources to help you decide whether to rent vs buy your first home:
- House Closing Basics, Documents & Costs
- Renting A Home vs Buying A Home: Both Sides Of The Argument
- Know The Limits Of Security Deposits Before Renting A Home
- Saving Money For A House – Some Tips To Help You Afford It
- Is It Better To Rent Or Buy? See For Yourself
- Rent vs Buy Comparison Chart + Statistics