The following is a guest post from Nigerian real estate developer Michael Chudi Ejekam.
Advantages of Renting an Apartment
- Flexibility. Although there is a commitment when renting a property, it’s easier to move to a new place than it is for a homeowner. Falling house prices can make it very hard to sell. Many homeowners have to reduce their prices further in order to move house.
- Low deposit. Most landlords require 2 to 3 months rent as a down payment. First-time home buyers will be expected to pay down at least 5% to 10% of the amount they wish to borrow. This figure will rise to as much as 20% for a bad credit mortgage deal.
- Repairs. Any maintenance and repairs aren’t the responsibility of the tenant. The landlord is legally obliged to carry our repairs within a reasonable period of time.
- Building insurance. Although the tenant remains responsible for taking out contents insurance to protect personal possessions, it is up to the landlord to insure the building and its structure.
- House price fluctuations. There aren’t any concerns about negative equity and mortgage foreclosure during periods of economic instability.
Disadvantages of Renting an Apartment
- No investment return. Landlords offer rental properties because they are seeking long term capital appreciation. The tenant is funding an investment for someone else. Although prices fluctuate, property values will be a lot higher 20-years from now.
- Notice. Provided that notice is given within the legal guidelines, the tenant has no choice but to vacate the premises on the date that is specified. This can be very unsettling and stressful.
- Decorating. There is minimal scope in-terms of developing the look and feel of a property. Some rental properties haven’t been redecorated in years.
- Bad credit. Would-be tenants with adverse credit, such as defaults, delinquent accounts and bankruptcies, will find it harder to rent an apartment. Letting agencies will normally perform a credit check before letting a room or house.
- Uncaring landlord. A bad landlord can make the tenant’s life a misery. Although there are laws in-place to help, it will take a lot longer to get repairs and problems resolved.
- Raising a house deposit. The cost of apartment rental could leave little disposable income to set-aside for a deposit on a house. This problem will be exacerbated when house prices are rising as an even larger deposit is needed to get a foot on the property ladder.
Apartment Rental vs Buying an Apartment
Due to the potential for long term capital appreciation, buying a house should be a long term priority for most families. However, there is no point in buying when the future is uncertain, property prices are falling or if finances are already stretched. Renting an apartment gives people flexibility with respect to moving between states, family commitments and future career opportunities.