Should you buy a condo or keep renting? It’s a question many people face when trying to balance lifestyle desires with financial limitations. Condos tend to be more affordable to purchase upfront than houses, but rentals offer more flexibility if you move soon. Continue reading below as we explore the key financial factors to weigh when deciding whether to buy a condo or continue to rent a house.
What is Involved in Buying a Condo?
Buying a condo is a major financial decision that requires careful consideration. While the process is similar to buying a single-family home in many ways, there are some unique factors to weigh with condos.
Down Payment and Closing Costs
Like a house, you’ll need to save up enough for a down payment on a condo which is often 10-20% of the purchase price. Closing costs like inspection fees, attorney fees, and transfer taxes can add another 3-5%. Being ready with this cash in advance is critical which also applies when you decide to buy a property.
Mortgage Application and Approval
You’ll go through the mortgage pre-approval and application process to determine the loan amount you qualify for. Condo loans may have stricter requirements as lenders consider the health of the entire building. Expect to provide financial documentation and have your credit score checked.
Condo Association Review
An important step is researching the condo association thoroughly. Review its financial statements, meeting minutes, bylaws, fees, and rules. Make sure reserves are adequately funded and confirm what amenities and services are covered.
Home Inspection
While common areas are the condo association’s responsibility, make sure to inspect the interior of the unit, from plumbing to structural soundness at your expense. Consider an inspection of the building itself too since you will be living on it.
Purchase Offer and Negotiation
As part of making an offer, you’ll agree to the condo building’s bylaws and pay the required association move-in/move-out fees. Costs are just one side of the decision-making process, but these cover the important fees when buying a condo unit.
If you’re unsure whether buying a condo or renting a house is the right choice for you, contact your property manager in Boston to guide you through your options.
What Does it Mean to Rent a House?
Renting a house is quite different from owning one. When you rent, you are paying to live in a house you do not own for a set period. This offers more flexibility but less equity growth in the long term.
No Down Payment or Closing Costs
Renters do not have to save thousands of dollars for a down payment or closing costs. At most, you’ll pay the first month’s rent plus a security deposit equal to about a month’s rent upfront.
Lease Agreement
You must sign a legally binding lease agreement, typically 6 or 12 months if renting a house. This contract outlines the rental rate, when rent is due, security deposit terms, who pays for which utilities, and more.
Maintenance Responsibilities
Maintenance and repair costs for the house itself are the landlord’s responsibility, not the renter’s. However, renters may be liable for any damage beyond normal wear and tear.
No Tax Benefits
Rent payments are not tax deductible. Without owning the property, you do not gain equity that can grow over time without paying capital gains taxes.
Flexibility
Renting does allow more mobility freedom. Leases eventually expire, allowing you to move somewhere else more easily than if you owned a home.
Of course, finances are not the only perspective when making the rent vs. buy decision. Before making a decision, it’s important to research all factors involved in buying a condo, from the location to the association fees.
Financial Benefits of Buying a Condo vs. Renting a House
When deciding whether to buy a condo or continue renting a house, there are short and long-term financial factors to consider. Condos provide stability and equity, while rentals offer flexibility and lower upfront costs. Here are some of the key financial pros for each living arrangement.
Benefits of Buying a Condo
- More Predictable Monthly Costs
Once you secure a fixed-rate mortgage on a condo, your principal, interest, and association fees generally remain steady. Property taxes and insurance rates may rise, but likely not drastically. On the other hand, landlords can choose to raise rents year to year, especially in high-demand areas. Locking in housing costs provides peace of mind.
- Building Home Equity
While rent payments disappear forever, mortgage payments build equity that belongs to you. With a condo, you also share underlying equity tied to the land and communal areas. As you pay down the principal and the unit value appreciates over years of ownership, you build net worth.
- Tax Advantages
The mortgage interest and property taxes paid for a primary residence, including a condo, are tax deductible. As a renter, you miss out on these savings. Condo owners also avoid capital gains taxes on up to $250k in profits from an eventual sale.
- Customization and Stability
Owning means having the freedom to decorate, renovate, and adapt the condo as you wish within condo rules. No worries about yearly lease turnovers or potential rent hikes. Once purchased, the condo is yours to live in as long as you like.
Benefits of Renting a House
- Lower Upfront Costs
Renters can move into a house without tens of thousands in down payment and closing costs. The security deposit, first month’s rent, and perhaps a broker fee add up to much less.
- Landlord Covers Maintenance Costs
Most repairs, such as leaky roofs, faulty appliances, and HVAC issues, fall to the landlord’s responsibility when renting an entire house.
- No Property Taxes or Insurance
Renting allows tenants to avoid costs for property taxes and homeowners insurance. However, tenants are limited in liability, and insurance coverage to protect personal belongings is optional.
- Increased Mobility
Renters lock in for 6 or 12 months at a time. Breaking a lease has financial consequences but still provides more flexibility to relocate than selling an owned condo. First-time home buyers or those anticipating job relocation may benefit more from renting short-term.
Conclusion
When choosing between buying a condo or keep renting a house will entirely depend on your financial situation. Both options bring financial benefits but it’s important to keep in mind what is your lifestyle needs and possible future goals. Take the time to carefully project costs and weigh the pros and cons before deciding.
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