Exercises: Renting Versus Buying a Home

Define "security deposit" and explain in two sentences what a landlord is allowed to use it for and when a tenant should get it back.

Define "grace period" in a lease and "eviction." Explain how the two ideas are related when a tenant is late with rent.

List two advantages of renting and two advantages of buying a home. Write one short sentence for each advantage.

Emma rents a one-bedroom apartment in Denver for $\$1,500$ per month. The lease requires a security deposit equal to one month's rent and renters insurance of $\$15$ per month. Calculate her total cost during the first 12 months, including the deposit. Then state how much of that total she should expect to get back at the end of the lease if she leaves the apartment undamaged.

Jayden's lease says rent of $\$1,200$ is due on the 1st, with a 5-day grace period and a late fee of $\$60$ after that. In one month he pays on the 4th, and in another month he pays on the 8th. Explain which payments, if any, incur the late fee, and calculate the total late fees he pays over the two months.

A family buys a house for $\$300,000$ with a down payment of 10%. Calculate the down payment and the amount borrowed. Then name two other costs of owning a home that a renter usually does not pay directly.

Sofia can rent an apartment for $\$1,400$ per month, or buy a condo. The condo's monthly costs are a mortgage payment of $\$1,350$, property tax of $\$250$, homeowners insurance of $\$90$, and maintenance of $\$150$. She would also pay a $\$30,000$ down payment up front. Calculate the monthly cost of owning and compare it with renting. Then argue whether renting or buying is better if Sofia expects to move in 2 years, using both short-term and long-term costs.

Mateo is deciding whether to renew his lease. His rent is $\$1,250$ per month and the landlord is raising it by 6% for next year. He also has the option to buy a home for which his total monthly owning cost would be $\$1,700$, but he would need $\$24,000$ for a down payment and closing costs. Calculate the new monthly rent, the extra monthly cost of owning compared with renting, and the number of months of that extra cost that equals the up-front $\$24,000$. Then discuss two non-financial factors and one financial risk he should weigh.