4 things that change when you go from renting to owning a house
Dated: August 31 2020
Owning a home comes with its own set of unique challenges and benefits renters don't have.
As a homeowner, you'll be responsible for all of your household's property taxes and repair expenses.
You may also pay more bills as a homeowner, as landlords can sometimes include some bills in a single monthly rent payment.
But, you can build equity to put towards a future home purchase and build wealth as a homeowner, which renters can't do.
As a renter, you may not have had to think about the garbage bill or how to afford a new roof. But, as a homeowner, that responsibility — and expense — is up to you.
While owning comes with many more responsibilities than renting, it also comes with a unique set of benefits that renters can't get.
1. You're responsible for repairs and expenses, and you'll need to save for them
When something broke or leaked in your rented home, you simply put a call in to your landlord. But, when you own, it's not so simple. You're financially responsible for your space and everything in it, so if something leaks, breaks, or needs repair, you'll foot the bill.
When you go from renting to owning a home, it's important to keep a stash of savings for those possible repairs or maintenance call. After all, repairs can be costly. Installing a new hot water heater could cost as much as $1,500, while an air conditioner repair could cost as much as $900, according to home repair site Home Advisor.
Keeping a savings account with cash set aside for these expenses is an essential part of homeownership. Financial planner Lindsay Youngbauer previously told Business Insider that she recommends saving 1% to 4% of your home's value each year for unexpected expenses — closer to 1% for newer homes more like 4% for older homes. Keeping your savings in a high-yield savings account can help your repair fund keep growing.
2. Everything is a separate bill
At your rented home, you may have had some of your bills included with your rent, and paid for by your landlord, like water or trash removal. When you own your home, your expenses aren't all bundled together like they were in your rent.
Just getting garbage picked up each week can be costly — trash removal generally costs between $30 and $50 per month according to Home Advisor, depending on where you live. In some parts of the US, adding recycling pick-up service can be another extra expense.
Bills for water, gas, electricity, internet, and more will all be your responsibility, and separate, when you own a home. Your mortgage might be cheaper than what you paid in rent, but there are a lot of other expenses to budget and pay each month, too. Investigate the additional costs you'll pay in the area where you're looking to buy on top of your mortgage each month, and consider that in your monthly budgeting.
3. Property tax increases can mean sudden spikes in your expenses
When you buy a home, you're not only paying the mortgage — you're also responsible for property taxes. These taxes are based on your home's value, and your local and state property tax rates. Changes to your home or property tax rates could increase your monthly expenses.
If you make a big addition to your home, like adding another room or bathroom, your home's value could go up and raise your monthly tax bill. Similarly, tax rates in your area could increase, which could raise the amount you pay. According to data from ATTOM Data Services, 120 US cities saw property tax increases greater than 3% between 2018 and 2019.
While renting can also come with unexpected increases, quarterly or semi-annually tax bills can be a more jarring expense than an extra $100 per month added to your rent to account for tax changes.
4. You have a chance to build equity you can use for a future home purchase
With renting, you don't gain any value that could help you out in the future. But, as a homeowner, you could have a head start on buying your next home when you move in the future.
Writer Eric Rosenberg has owned three homes since 2011, and doesn't think he could own his current home in Ventura, California, without the equity he'd built in previous homes. "I give credit to both of my prior homes for the funds to afford my current one," Rosenberg writes. "Had I not made so much on my Denver and Portland homes, the one I have in California would have been out of reach."
While owning isn't a guarantee you'll be able to build significant wealth, if you make money on your first home's sale, you could use that to help with your next home's purchase. How much you make — or if you make anything at all — depends on the situation ... but there's no chance you'll be able to do that when renting.
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