No matter where you are in the US or its territories…owning a home is one of our lifelong goals.
But truth be told… home ownership isn’t for everyone.
For some people, renting might make more sense for their financial circumstances.
Below are 10 reasons why renting would make more sense than buying your own home.
– Buying has a higher initial cost. A homebuyer is required to pay closing costs and sometimes, a sizable down payment—typically around 20% of the property’s value—when purchasing a home with a mortgage. Whereas, Renting usually requires the pro-rated rent and security deposit equal to one (or two) month’s rent.
– Renters have no maintenance costs or repair bills and they don’t have to pay property taxes or homeowner’s insurance.
– Generally, renters also have greater flexibility in where they live, and access to amenities, such as a pool or fitness room, that might otherwise be expensive.
– Both renting and buying on Guam have their financial advantages, yet owning a home isn’t right for everyone.
1. No Down Payment
Renters have a better financial deal with the up-front cost. Renters generally have to pay only pro-rated rent and security deposit equal to one (or two, or three) month’s rent, a deposit that that will theoretically be returned to them when they move out, provided they haven’t damaged the rental property.
When purchasing a home with a mortgage, you’re required to have money for closing cost- about 3 to 4% on Guam; and sizable down payment—typically around 20% of the property’s value. Of course, that down payment results in having equity in the home, which only increases as the mortgage is gradually paid off. And once you own a home free and clear, you have a valuable investment that renters never attain.
Still, the amount needed for a down payment on a home is significantly more than a rental security deposit. A 20% down payment on a house that has a market value of $200,000 is $40,000. The average apartment rental on Manhattan Island in New York City, one of the most expensive places to live in the U.S., was $4,801 in July 2020.
In Guam OHA / PCS terms: There is 0% downpayment for VA loans but home buyers will need 3-4% of the purchase price for closing cost. That’s about $16,000 to close for a $400,000 single family home. The starting price for OHA on Guam is $2,205.
2. Fixed Rent Amount
Rent amounts are fixed for the span of the lease agreement. While landlords can raise the rent with notice, you can budget more efficiently, because you know the amount of rent you are required to pay.
Fixed-rate mortgages also allow for efficient budgeting, but adjustable-rate mortgages (ARM) can fluctuate, often resulting in rising mortgage payments rs nearly everything owned, including furniture, computers, and valuables. The average cost of renter’s insurance is $180 per year, while the average homeowners insurance policy costs $1,211 per year, according to a 2017 study by the Insurance Information Institute.
Homeowners, on the other hand, are responsible for all home repair, maintenance, and renovation costs. Depending on the nature of the task, it can get quite pricey.
3. No Maintenance Costs or Repair Bills
One of the benefits of renting a home is that there are no maintenance costs or repair bills. When you rent a property, your landlord is responsible for all maintenance, improvement, and repairs. If an appliance stops working or your roof starts to leak, you call the landlord, who is required to fix or replace it.
4. No Real Estate Taxes
One of the major benefits of renting versus owning is that renters don’t have to pay property taxes. Real estate taxes can be a hefty burden for homeowners and vary by county—in some areas the costs can be thousands of dollars annually.
Although property tax calculations can be complex, they are determined based on the estimated property value of the house and the amount of land. With newly built homes getting larger and larger, property taxes can be a significant financial burden.
On Guam, real estate tax is approximately 3% of assessed property value.
5. Lower Insurance Costs
While homeowners need to maintain a homeowners insurance policy, the equivalent for renters is a renter’s insurance policy, which is much cheaper and covers nearly everything owned, including furniture, computers, and valuables.
Most, if not all, Military renters using their OHA get their renter’s insurance from USAA.
6. Access to Amenities
Another financial benefit of renting is having access to amenities that would otherwise be an enormous expense. Luxuries such as an in-ground pool or a fitness center come with a few apartment/condominium/townhouse complexes with no additional charge to tenants.
If a homeowner wanted to have access to these amenities, it would likely cost thousands of dollars for installation and maintenance. Condo owners would need to pay monthly fees for access to them.
7. More Flexibility as to Where to Live
Renters can live practically anywhere on the island, while homeowners are restricted to areas where they can afford to buy. Living in busy and desirable central villages like Tumon and Tamuning might be out of reach for most home buyers, but it might be possible for renters. Although rents can be high in these villages where home values are also high, renters can more readily find an affordable monthly payment than home buyers.
IMPORTANT: Mortgage lending discrimination and rental discrimination are illegal. If you think you’ve been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. One such step is to file a report with the U.S. Department of Housing and Urban Development (HUD).
8. Few Concerns About Decreasing Property Value
Property values go up and down, and while this may affect Guam homeowners in a big way, it affects renters substantially less, if at all. Your home value can impact the amount of property taxes you pay and the amount of your mortgage. In a rocky housing market, renters may not be as adversely affected as homeowners.
9. Flexibility to Downsize
Renters have the option to downsize to a more affordable living space at the end of their lease. Such flexibility is especially important for retirees who want a less costly, smaller alternative that matches their budget.
It’s much more difficult to break free of an expensive house because of the fees involved with buying and selling a home. Also, if a homeowner has invested a significant amount of money in renovations, the selling price might not cover these costs, leaving them unable to afford to sell and move.
10. Lower Utility Costs
Although single family homes can vary in size, they are typically larger than rental apartments, condominiums or townhouses. As a result, they are more costly to cool and also can have higher electric bills. Rental properties typically have a more compact and efficient floor plan, making them more affordable to cool and power than many houses.
The Bottom Line
Owning a home on Guam can be beneficial for homeowners over the long run, due to the amount of equity they acquire in their home. Renters have nothing tangible to show for years of rental payments. However, for those who are looking to avoid the hassles of homeownership, the costs of upkeep, and property taxes, renting might be a better option. Of course, it depends on each person’s lifestyle, financial situation, and whether they’re working or in retirement.