About Renting
- When renting, there are always four elements present: payment amount, payment frequency, specified duration of rental and a deposit. The payment amount is determined by the market--for example, how much someone is willing to pay for a three-bedroom apartment. This price can vary greatly from city to city.
The payment frequency is determined by the owner. The most common frequency is monthly. Some short-term apartments, however, accept payment weekly. The specified duration is the amount of time you are locked into a contract. If the contract is for 1 year, you must rent the home for 1 year before moving.
The deposit is a designated amount of money given when you sign a rental agreement. Typically it is 1 or 2 month's rent. In case the renter trashes the home, or leaves without warning, the deposit is used as a safety net for the owner. If the renter follows the rules, she gets her deposit back after the contract has expired. - There are two main types of renting: traditional renting and rent to own. In a rent-to-own scenario, the renter and owner settle on a future selling price of the home. This could be in 1 year, 3 years or more. Once the time has expired, the renter has the option to purchase the home for the designated price. Many times, the rent money goes toward the purchase price of the home. In a traditional renting situation, the renter gives a certain amount of money each month to the owner. The money does not apply toward anything, and once the contract has expired, he gets nothing back. No equity or credit is earned.
- Renting is abundant all over the country. There are, however, certain areas where renting is much more common. College towns, for example, overflow with renters. Students who have little money for a down payment and know they won't live in town for too many years choose to rent over own. Also, large cities with extremely high-cost real estate markets tend to have more renters than other, less-expensive suburban areas. New York City, for example, is full of renters.
- Renting is beneficial for a couple of different reasons. First of all, as long as you are locked into your rental agreement, you are virtually immune to any real estate market dips. Since you don't actually own your property, you suffer no loss if it loses value. Another advantage of renting is the ability to call your landlord when something goes wrong. If you have a leaky faucet, a torn piece of trim or a broken door, you call your landlord and get it fixed on someone else's dime. If you own, you are responsible for the maintenance.
- Renting does have its drawbacks. When you rent in a traditional fashion, your monthly payments do not apply toward any sort of equity in your home. You gain absolutely no wealth. If you fall on financial hard times, you have no real estate to fall back on. You cannot take out a home equity loan, nor can you sell your home for a profit.