Most people rent an apartment when they first move away from home, as it tends to be the most affordable option. In some situations, however, it can actually be more affordable to purchase a condo, so it’s worth being aware of your options before you rush into something. Read on below for several factors that might make renting an apartment more expensive than owning it.
When interest rates are extremely low
Interest rates are one of the things that make owning property often more expensive than renting. Because of compound interest, a difference of even three to four percent in your interest rate over the course of a 30-year mortgage could potentially mean a difference of tens of thousands of dollars in the actual cost of owning a condo.
The decision about purchasing versus renting can vary widely based on your location. Things like property taxes and utility costs are different from state to state and city to city. Some large cities where it can be more affordable to buy a condo or even a home than to rent an apartment include Birmingham, Alabama; Cleveland, Ohio; Pittsburgh, Pennsylvania; St. Louis, Missouri’ and Detroit, Michigan.
While this may not be enough of a financial incentive for you to move cities entirely, it’s worth thinking about if your city is like this. Many Midwestern and Southern cities may have affordable options for purchase.
If you split utility bills with other tenants
Renting an apartment may be more expensive than owning a condo if your landlord makes you pay an equal share of the utility bills, as saving money on certain utilities is one of the financial benefits that usually helps renting be advantageous. This depends on the other tenants in your building and how much energy or water they use, but in extreme cases, it may be enough to sway your decision.
If you aren’t allowed to sublease
One advantage of owning a condo versus renting an apartment is that you have complete freedom over what you want to do with your own property. This means that if you want to sublease out part of your condo or have a roommate move in with you, you’ll be able to do so freely.
Subleasing is a common way to make a little extra money if you run into financial troubles, so if you can’t find a landlord that will allow you to do it, it may be more affordable long-term to purchase a condo.
How to make the decision
Choosing where to live is a big part of ensuring your financial security, and deciding whether to rent or buy is one of the most important pieces of the puzzle. This isn’t an easy decision to make, however, as there are so many factors that go into the costs of owning a condo.
Use a calculator like this one to estimate how much of a mortgage you can afford based on how much you know you could afford in rent. This will make your choice clear.