Deciding whether it’s better to lease vs. rent will depend on how long you intend to live somewhere.
This might surprise you, but leasing and renting are not the same thing. The two terms are often interchanged, especially when it comes to apartments, but it’s simply not right. When you lease a home, it’s different than when you’re renting it.
Lease vs. rent: What’s the difference?
The easiest way to tell whether you’re dealing with a lease or a rental situation is time. A lease is a contract often signed for a longer period of time than a rental agreement. When you sign a lease for an apartment, it’s usually a 12-month contract. When you rent, you’re looking at more of a month-to-month agreement, with each period technically being no longer than 30 days.
It gets confusing because, although time is the great differentiator in the battle of lease vs. rent, many other features are the same. Both a lease and a rental agreement, when it comes to a property, can include:
- A security deposit
- Monthly rental payments
- Rules for usage
In fact, everything between a lease and rental agreement may look the same on paper, except for the period of time the contract is for. Still confused?
Clearing it up with the car example
To make this slight difference even more clear, it’s best to step away from apartments and look toward the automotive industry. The lease vs. rent conversation is much clearer here.
When you lease a car, you’re paying a down payment and making monthly payments for anywhere from one to two years, on average. You’re paying to drive that car as your own for a long-term, set amount of time.
When you rent a car, you’re doing so because you find yourself without one for a few days, maybe even a week, on a trip or when the car you own is in the shop for long-term repairs.
You can even think of it in terms of where you go to get a car. You almost always lease a car from a dealership, but rent a car from a car rental place.
Again, though, the biggest differentiator between a lease and a rental, even in this example, is time.
Why lease?
Leasing has its benefits if you’re sure you’re staying put for a while. It’s a more secure way to keep your home over a longer period of time. Most leases are for a year, and with that longer-term commitment, you get stability. Often, rent can’t increase within the terms of a lease, so you can organize your budget. You also have time to establish a relationship with your property manager that may make it easier to renew your lease should you want to stay longer than 12 months.
With a lease, you can move in, settle in and know you’ll be in the same place for a set period of time.
Leasing’s biggest con is its best pro
Unfortunately, the biggest positive of leasing is also its biggest negative. Yes, you have great stability in your living situation and plenty of assurance you won’t have to leave until your lease it up. However, should you have to leave earlier, that stability has consequences. A sudden need to move can result in breaking your lease. That can come with extra charges or the loss of your initial deposit. While it doesn’t happen often, if there’s any chance you won’t make it to the end of your 12-month lease, you may want to consider the alternative.
Why rent?
And that’s where renting comes in. It gives you all the flexibility necessary to make a quick change to your life without major financial consequences. A rental agreement only means you commit for about a month. It’s perfect if you’re in a situation where employment is only short-term. It’s ideal if you’ve just moved to a new city and you’re not sure exactly where you want to settle down.
Renting also gives you an automatic escape route if something in your life should suddenly change. Common reasons that put a move into motion with less notice than usual is:
- Moving in with a significant other
- Relocating for work
- Acceptance to graduate school
- Need to downsize, or upsize, to accommodate your family situation
All of these situations can take you away from your current living situation at a time that doesn’t necessarily align with a lease ending.
Renting can still become more costly
Again, where stability can hurt those who lease, flexibility can hurt those who rent. Having a month-to-month rental agreement can give your property manager the ability to raise your rent at any point. You won’t always know when an increase is coming, and that can lead to changes to your living situation you weren’t expecting.
Even with the flexibility of a rental agreement, nobody wants to get forced out of their home because it suddenly becomes too expensive to afford. Make sure you read your rental agreement carefully to see how rent increases work and talk to your property manager about it. You can ask how often they’ve raised rents in the past and adjust your savings to have a buffer. This information may even impact whether you want to live in that specific apartment.
When a lease becomes a rental agreement
There’s one other situation when it comes to real estate where you can get the best of both worlds. Here, it’s not lease vs. rent, but rather lease, then rent. This scenario often happens when a tenant who has signed a lease wants to continue by renting. They don’t want to renew the lease for another 12-month period but want to stay in the unit for a period of time. Often, the property manager will then shift the lease to a rental agreement and let you continue living there on a month-to-month basis.
This change in living agreement is perfect for someone who’s loved living in their home but knows they’ll need to move out in less than a year. You don’t have to struggle to find interim housing but can keep on living where all your stuff already is, just under different terms.
How do I decide between lease vs. rent?
Choosing between a lease or a rental agreement can seem easy based on your current lifestyle, but there’s always the unexpected that can pop up. When deciding between renting or leasing, try to look ahead and estimate the likelihood of staying put. If you feel there’s a good chance your life could significantly change in less than a year, go with renting. Otherwise, a lease is a safe bet. Either way, read through your housing contract carefully and thoroughly before signing anything. Then, start making plans to move on in.
Source: rent.com