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

        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.

      Disadvantages of Renting vs Buying

      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. 

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