Renting vs Buying and Home Insurance

Owning a property or renting one comes with a specific set of advantages and disadvantages.

Let’s discuss all the actors:

Insurance: Renting vs Buying

Insurance protects the property when it comes to renting vs buying, but in different ways.

Similarities Between the Two Types of Insurance

• Both types require regular payments, either monthly or in one lump sum payment.
• Both must be paid up (or the payments should be up to date) for the policy to pay out a claim.
• Both require the payment of a deductible (a sum which you pay towards an insured loss) unless otherwise stipulated in the policy.
• Both policies have liability coverage.

Differences Between Insurances

• Homeowners insurance covers the actual building and any other buildings specified, like garages, on the property.
• With renters insurance, the landlord will have coverage on the building, and your insurance covers your personal property.
  • Homeowners insurance is required when you take out a mortgage. Tenants can obtain renters insurance to cover personal property.
  • The cost of a homeowner’s insurance policy would generally be higher than a renter’s insurance as a home is a more substantial asset than possessions.
  • • Buying a home has the long-term benefits of security, equity, and growth in personal wealth, as properties usually appreciate over time.
    • You have no restrictions from a landlord, and you have greater freedom to use the property if you own it. You can renovate the house and landscape the garden in any way that you want.
      

      Advantages of Buying a Home Vs Renting

    • You can rent out the property (or part of it) to generate an income that can be put towards the home loan.
    • If your monthly repayments are made on time, you can improve your credit profile.
    • There are possible tax implications when it comes to owning a property.
    • You can refinance your bond amount if you want to withdraw a large sum of money for major purchases.

    Disadvantages of Buying a Home vs Renting 

    • You have the financial responsibility of bond repayments and regular maintenance.
    • There are additional costs, including rates, taxes, and insurance.
    • There’s a risk of not making a profit through reselling the home. For example, if a recession or a particular location becomes less desirable, resale values may be less.
    • A homeowner has less mobility and can usually only move when the property has been sold before buying a new one.

    Advantages of Renting vs Buying

    • This option gives more flexibility and less commitment to those who could move suddenly.
    • You can live in an area you couldn’t afford to buy.
    • Moving out is easier as you can find another tenant to take over the lease.
    • Insurance is cheaper for a tenant, and all maintenance on the property is the homeowner’s responsibility.
    • After paying rent, a tenant may have extra funds which they can invest elsewhere.

    Disadvantages of Renting vs Buying

    • A tenant has no freedom to renovate the property without the landlord’s permission.
    • You’ll often have to deal with a rental agent, resulting in issues taking longer to get resolved between you and the homeowner.
    • Renting offers no return on investment and no wealth creation.
    • You have no control over fluctuations in annual rentals, which can go up and down with inflation.
    • There’s no guarantee that the lease will be renewed when it expires.

    Conclusion

    The choice between buying a house or paying rent can be a difficult one.

    Renting makes sense if you aren’t sure how long you will be staying in an area. However,  if you want to put down roots and make a good investment, it may be time to buy a home. Just remember that it’s essential to know the difference between homeowner’s and renter’s insurance, and know which choice is the best for you.