Owning a home is a very big responsibility, some people are just not keen on the idea of being tied to a single place for a long time. They want to have the flexibility of being able to live where they want to. For them, renting or leasing a place to stay is better than owning a property. For savvy Real Estate investors, they buy properties in the hope of earning passive income from their assets in the form of rental income. First, let’s discuss some important terms.
Landlord – is the person or business entity who owns the property and puts it up for rent. They take care of the property when it has no current tenants and works on getting the place rented out in order to earn passive income.
Tenant – the person who needs a place to stay for a certain period of time. Their reasons can vary from still not being able to afford to buy their own house just yet, they just relocated to a new place because of employment reasons, or they just need a place to stay for a certain period.
Rent – the agreed fee the tenant pays the landlord on a monthly basis relative to the time he or she occupies the rented property. It is usually the landlord that sets the amount of the rental fee. If the property is located in the city, expect the amount to be much higher compared to a property for rent in the rural areas. However, the tenant can always negotiate a lower rental fee in exchange for some conditions.
Lease – long-term binding agreement or contract between landlord and tenant that stipulates the length of time the place must be occupied, the rental fee for the duration of the lease agreement, who pays for any kind of repairs, or penalties in case the tenant fails to complete the term. Lease terms can range for a year and some can go as long as 3 to 5 years.
So, if you’re either a landlord or tenant, which is the best option for you, Renting or Leasing?
If you’re a landlord, leasing your property makes more financial sense as you know for sure how long you’ll earn rental income. When the lease agreement is about to end, you’ll know if the tenant would renew the agreement or not. This gives you a lot of time to look for another tenant in advance if in case the tenant wants to move out after the contract expires. The only downside is you can’t adjust the rental fees at any time the contract is in effect. If the rental rates in the area go up, the tenant is protected from such conditions.
If you’re a tenant who’s unsure about your next move, renting on a monthly basis is often your best and only choice. It gives you the freedom to move at any time in case you land a better paying job elsewhere without fear of breaking any lease agreement. You’re free from the huge costs of owning and maintaining your own house. On the downside, landlords may charge you more as they are uncertain about how long you’ll rent their property.
Overall, renting or leasing has its own set of pros and cons. Assess your needs and go for what gives the most value for your money.