A thorough comparison of renting and owning a home from a professional! Introducing the pros, cons and costs

Comparing the lifetime costs of renting and owning a home

When comparing renting versus owning a home, I think the most important consideration is the lifetime cost.

To start with, the conclusion is that "owning a home has the highest initial costs" and "renting has the highest total costs."

When owning a home, you will often have to take out a mortgage, which means monthly payments, but in most cases you will also pay a lump sum up front as a down payment.

Therefore, the initial costs of owning a home are higher.

Now, let's compare the amount you would pay to rent versus own a home, assuming you have been in the property for 50 years.

	Homeowner	Rental
Initial cost
down payment	1 million yen	-
Brokerage fee	-	100,000 yen
Rent guarantee fee	-	100,000 yen
Deposit and key money (1 month's rent each)	-	200,000 yen
fire insurance	-	30,000 yen
subtotal	1 million yen	430,000 JPY
Running costs
Mortgage/Rent	100,000 yen per month x 35 years	100,000 yen per month x 50 years
Property tax	80,000 yen per year x 50 years	-
Fire insurance premiums	150,000 yen (once every 5 years)	30,000 yen (once every two years)
Renewal Fee	-	100,000 yen (once every two years)
Repair costs (roof, walls, etc.)	2 million yen (once every 20 years)	-
total	52.5 million yen	63.25 million yen

As shown in the table, renting has lower initial costs, but the lifetime running costs are higher when renting than when owning a home.

If you are deciding based solely on cost, use the information above to compare the lifetime costs of buying and renting for the property you are considering.

The advantages and disadvantages of renting and owning a home

First, we have summarized and compared the characteristics of renting and owning a home. Please see the table below.

	Rental	Homeowner
assets	Not an asset	Become your own asset
Possibility of renovation	Renovation is difficult	Renovation possible
Facilities	Relatively simple	Fulfilling
Initial cost	Relatively cheap	expensive
Ease of relocation	Easy to relocate	Difficult to relocate
maintenance	Low self-inflict burden	Regular maintenance required

Next, we will explain the advantages and disadvantages of renting and owning a home. Make sure you fully understand the good points and things to be careful about for each.

Benefits of renting

There are three main advantages to renting:

• You can move in immediately
• Initial costs can be kept low
• No management fees or property taxes

You can move in immediately

Generally, when renting, you can move out at any time as long as you give notice to move out one month in advance.

This means that you can move even if the noise from next door or upstairs is severe and cannot be improved.

If you own your own home, even if you have trouble with your neighbors, you cannot easily move because you still have a mortgage to pay.

Initial costs can be kept low

The initial rental costs are approximately 4 to 5 months' rent.

Owning a home can require initial costs of several million yen, so this can be kept relatively low.

Also, if things get tough financially, you can reduce your monthly expenses by moving to a rental property with a lower rent.

No management fees or property taxes

When renting, the landlord pays the property taxes and, depending on the property, may also cover the maintenance fees.

Therefore, the cost of leaks or broken water pipes is generally not borne by the tenant.

However, please be aware that intentionally drilling holes in the walls or staining them with cigarette tar may result in expenses for the tenant.

Disadvantages of renting

There are three main disadvantages to renting:

• A house is not an asset forever.
• Renovations are not easy
• There are many neighborhood problems

A house is not an asset forever.

If you are living in a rental property, even if you continue to pay rent every month, the property never becomes yours.

Therefore, no matter how many years you live in the property, you do not own it and you will continue to pay rent.

Renovations are not easy

When renting, you often can't renovate freely.

If the rental agreement or other document states that "the landlord's consent is required for any interior renovations," you will need to get consent from the landlord.

You need to be careful when changing the wallpaper to your favorite color or installing a wall-mounted TV.

There are many neighborhood problems

Making noise late at night or listening to loud music can cause problems with your neighbors.

There is a possibility that you may get into trouble with the person living in the next room and become involved in a major incident that makes the news.

Therefore, you need to be a little careful when renting.

Benefits of home ownership

There are four main benefits to owning a home:

• You can live without worrying about your neighbors
• Remains as an asset
• Renovation is free
• In the unlikely event that you lose your loan

You can live without worrying about your neighbors

When you own a detached house, the buildings are often spaced apart to a certain extent, so you can live there without having to worry about your neighbors.

Especially in a two-story detached house, there are no neighbors to complain if children run around or drop things.

If you have small children, owning your own home allows you to live with peace of mind without having to worry about trouble with neighbors.

Remains as an asset

Once you have paid off your mortgage, your home becomes your equity.

You can make a lump sum of money by selling it, or you can rent it out and earn rental income.

Owning a home is a good idea if you think of it as an asset, as it can be inherited or gifted to your children in the future.

Renovation is free

As the name suggests, your home is yours, so you are free to renovate it however you like.

Since you can freely expand or renovate, you have the flexibility to change the number of rooms and layout to suit your life stage.

In the unlikely event that you lose your loan

If you have group credit life insurance, you may be able to avoid having to pay your mortgage.

If the person who took out the mortgage dies or is diagnosed with cancer, the insurance money is used to repay the loan.

Some homeowners worry that if something were to happen they will have difficulty repaying their mortgage, but by taking out group credit life insurance, they can continue to live in their home with peace of mind.

Disadvantages of home ownership

There are three main disadvantages to owning a home:

• If you can't pay your mortgage you have to move out
• Maintenance is costly and time-consuming
• Property tax is charged

If you can't pay your mortgage you have to move out

If you are unable to pay your monthly mortgage, the financial institution will seize your land and your house.

In some cases, the home will then be sold and you may have to move out.

Be careful not to set the monthly payment amount too high, as it will become difficult to pay.

Maintenance is costly and time-consuming

Since owners are responsible for maintaining their own homes, they are required to do things like painting the exterior walls and waterproofing the roof about once every 20 years.

Painting the exterior walls and roofing work can cost around 2 to 3 million yen.

So, if you are thinking of buying a home, make sure you factor in maintenance costs.

Property tax is charged

If you own your home, you are required to pay property tax on the land and building every year.

If the location is good or the building is new, you may have to pay property taxes of hundreds of thousands or even millions of yen each year, so be sure to check in advance.

Also, please note that property taxes will still be levied even if the property becomes vacant.

Characteristics of people suited to renting and owning a home

So far, we have compared renting and owning a home and looked at the pros and cons.

So, based on the comparison so far, we will explain what type of people renting and owning a home are suitable for. Compare them to see which one is best for you.

Characteristics of people suitable for renting

What kind of people are suitable for renting? Here are three characteristics you should look for.

• People who transfer frequently
• People who want to live in different places
• People who don't want to feel the weight of a loan

People who transfer frequently

If you move frequently for work, renting is a good option.

For example, employees of major trading companies and bankers are frequently transferred, and if they rent, they can move quickly even if the transfer is sudden.

People who want to live in different places

If you don't like living in one place for a long period of time, renting is a good option.

Especially in recent years, as more and more work is completed through remote work, renting is recommended for those who want to change their residence regularly to change their mood.

Also, for those who are expecting changes in their life stage, such as living together, renting an apartment that can accommodate various needs flexibly may be a good option.

People who don't want to feel the weight of a loan

Interest rates are low these days and it is possible to take out a mortgage for the same amount as rent, but rent and a loan have completely different weights.

If you can no longer pay your rent, you can simply lower your standard of living and move to a house with cheaper rent, but if you can no longer pay your mortgage, your house and land will be auctioned and you will lose your home.

Therefore, renting is recommended for those who do not want to live with the stress of paying a mortgage.

Characteristics of people suitable for home ownership

Next, we will introduce three characteristics of people who are suited to owning a home.

• People who want to leave assets for their children
• People who don't want to pay housing costs in retirement
• People with small children

People who want to leave assets for their children

If you want to leave a home to your children or grandchildren in the future, it is better to own your own home.

When you die, you can leave your home and land to your children and grandchildren.

Also, if your children don't need the house in the future, it can be sold, making it a great asset.

People who don't want to pay housing costs in retirement

You have to keep paying rent as long as you live there, regardless of your age. On the other hand, if you own a home, you no longer have to make payments on it once the 35-year mortgage is over.

In other words, if you purchase a home at age 30 and finish paying off a 35-year mortgage by age 65, you will be able to live a meaningful life after retirement.

People with small children

If your children are still young, you may want to consider buying a home.

If you are renting, noise control measures will be necessary as children's footsteps and cries can cause trouble with neighbors.

Therefore, if you have small children, we recommend owning your own home so you can live without worrying about those in the next room.

summary

This time, we compared renting and owning a home, explaining the characteristics of each and the types of people who are suitable for each.

When searching for a home, consider not only the cost, but also the advantages and disadvantages of each option introduced in this article, as well as your future life plans.

Also, the following column from the real estate media " Renovism " will be helpful when searching for a home.

Unlisted [How to Find Land] How to find unlisted properties that are not listed on Suumo!

Please also refer to this article.