Oxford Dictionary

Renting [noun] A tenant’s regular payment to a landlord for the use of property or land.

ELI5

Renting is the main alternative to buying a home – it’s when you agree to borrow an apartment or house for a fixed amount of time with the person who actually owns the property, landlord. The agreement that is signed for this period of time is normally known as a lease. The benefit of renting is that you have greater flexibility compared to homeowners. When homeowners lock themselves into a mortgage, they have to pay the required monthly payment or will face defaulting. Renters generally don’t face the same level of punishment for missing or being late on a payment.

Let’s look at an example of the power of renting. Imagine knowing that you and your family plan on moving to another state in the near term, let’s say 3 years – it makes more sense to rent for these couple of years than buy a house. You can sign a lease for a # of months necessary and move out with no strings attached.

Instead if your family purchased a house, you’d have to worry about buying the property, maintaining it, and eventually selling it. You are responsible for the mortgage payments upkeep of the property, paying homeowners insurance, property taxes and a commission on the sale of the property. In addition, if the property value declines over the course of 3 years – you end up losing a good bit of money.

Detailed Definition

Renting involves fewer steps than purchasing a home. Let’s do a quick walkthrough of the process to shed light on some renting terminology.

1/ Determine the following — price range, location, apartment size (# bedrooms, bathrooms), amenities desired (washer/dryer in unit). Apartments come in many different flavors and forms – and are more widely available than homes. Coming up with a list of necessities vs. wants can be useful in pruning down the apartment search.

2/ Either walk around to find apartment complexes that have units available or use sites such as Apartments.com, Zillow, Padmapper to contact landlords and property managers. A property manager tends to be the individual you interface with during the course of your rental period. Many landlords don’t actually manage the property due to the time it takes, and they contract out to third party property management companies. In some cases, the landlord may also act as the property manager — so it’s generally useful to develop a good relationship with them in the early stages.

3/ Narrow down the apartment search list and fill out a rental application. There is a small fee associated with the application normally (< $50 per applicant usually). It is important to know that property managers generally do a soft pull on your credit history – which functions as a background check. Soft pulls don’t affect your credit score, unlike a hard pull from a prospective lender.

4/ If the application is approved and the property manager signs off, they prepare a lease containing all the contractual information. Once this is signed and the security deposit are paid, you are ready to move-in. Typically the lease contains:

  • [Rental term and rent amount and form of payment] – How long the lease is for (most are from 6-12 months) and how much it is per month. Also, check for how rent should be paid, it’s typically cashier’s check, personal check, and online payment are the most common.
  • [Security deposit] – Property managers will typically request you pay a security deposit upon moving in. This deposit is an advance payment that does not go towards rent, but rather a form of protection for the landlord or property manager if the tenant aborts the lease. The security deposit is also used towards cleaning and repairs at the end of the lease and the leftover amount is returned to the renter. Security deposits are limited to 2x rent for an unfurnished apartment and 3x rent for a furnished apartment.
  • [# of tenants] – make sure all tenants are included in the lease. Otherwise having more people than allowed is a breach of contract.
  • [Details on repairs and maintenance ]- you aren’t responsible for calling a plumber when the toilet breaks down…unless the damage was intentional. Typically, a maintenance request is submitted to the property manager, and they’ll handle the repairs Read these carefully to see what is and isn’t allowed during your rental term.
  • [Code of conduct] – noise levels, being respectful of other tenants, and rules regarding usage of common areas in larger apartments.

At the end of the day, the choice between buying a home and renting comes down to a handful of points. Typically renting is cheaper in the short term since no down payment is required and the monthly payments are less than a mortgage. Maintenance, insurance costs are also less. You have greater flexibility – if you don’t like your apartment you can move out after the lease. If there is a long-term problem with a house, you’ll sink more money into solving it. With a rental, it’s generally not the renter’s responsibility to fix the issue, the property manager should take care of the big-ticket items.

The big counter is the equity that you accrue when paying a mortgage – you are actually not ‘spending’ money when paying a mortgage, but rather acquiring a chunk of equity in the property with every payment. In renting, you are spending the money and not gaining anything in return — other than a place to live. Another significant counter is that homeowners have full creative freedom to redesign, renovate, and modify their abode (barring HOA requirements). Apartment owners have limited abilities to make the home their own – no repainting walls, changing appliances, etc.

In this day, with house prices at record highs, many demographics including young adults and families as well as middle-aged adults are less likely to be homeowners and more likely to rent. After growing up during the 2008-2009 Great Recession, people are hesitant to jump into a real estate market with such high prices — preferring to rent instead.

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