Leasing vs Renting – What are the differences?

24 January 2023 | Posted in Content Hub | Tagged: Leasing
Leasing vs Renting

Leasing vs Renting – What are the differences?

It is very common for people to confuse the difference between leasing and renting, some even consider the two to be the same just in different wordings. In fact, leasing and renting are two different methods of gaining access to a property owned by someone as a third party. Although these two methods have certain similarities such as terms of use period, rules, and regulations that are applied to third parties during the agreed period as well as the agreed responsibilities which all parties should have to set for maintenance and utility costs for instance. To fully understand the difference between leasing and renting as well as which type is more suitable for you, continue reading down below! 

Defining Leasing vs Renting: 

       Ultimately, leasing is an outline of a long-term agreement between the lessor allowing access to a property to the lessee, which simply means the transfer of property right to the lessee for a long period of time. Renting, on the other hand, is also an agreement between the landlord and tenant for the use of a property but only for a short period of time.    

 

The Difference Between Leasing and Renting: 

     Besides the clear difference in spelling and terms, there are a few more differences showing how leasing and renting differ from one another. Here are some key differentiators of the two methods: 

    • Duration of the agreement: generally, a lease agreement tends to start from 6-12 months or more according to both parties, whereas a rent agreement mostly covers a monthly basis between the landlord and tenant. Therefore, leasing specified a longer time than renting.
    • Payment methods: the payment method for leasing is also different from renting. In general, if you decide to rent then you will have to pay the rental fees monthly. For leasing, however, you can have more options of payment to choose from whether monthly, quarterly, or yearly 
    • Terms of Agreement: the contract for leasing differs from a rental contract in the sense that a lease contract is done only once with a fixed period of time, leasing fee, and other conditions included in the agreement and cannot be altered until the end of the leasing period. A rental contract is changeable by the landlord at any time since this contract is usually done to cover one month at a time only 
    • Agreement Renewal: If you decide to lease a property, the lessor can offer the lessee to either buy the asset or renew the contract upon the expiry of the previous contract. This offer, however, is not applicable for renting a property most of the time 
    • Flexibility and responsibilities: when leasing a property, the responsibility such as paying taxes and maintaining the property lies on the lessee. This is also relevant to the tenant when renting a property, however, renting a property gives more flexibility to renew or move to another location unlike leasing

 

Types of Varieties for Property Leasing or Rental: 

           Whether it is leasing or renting, the different types of properties apply to both methods. If you are among those who are currently looking for the comfort of having property without having to have it, you should check out some of the property varieties suitable to either lease or rent according to your circumstance. 

    • Housing: If you are looking for a residential property to start a family, the comfort of a home is a great start. If you decide to lease a house, this means you will be committing to living in that property for longer than 6 months, and breaking the lease before the agreed leasing period will result in some consequential penalties according to the agreement terms. However, the good news is that the lessor won’t be able to raise the rental fee during the leasing period. At the end of the leasing period, the lessor could also offer to vacate the home, renew the lease or offer to buy the house altogether. However, if your decision is to rent, then the contract agreement to be signed with the landlord will be on a monthly basis and for a shorter period of time.  
    • Apartment: Quite similarly to housing, leasing an apartment will require signing an agreement for a long-term much like the leasing period above, while renting is most suitable for shorter. Both leasing and renting require an upfront security deposit. Although renting an apartment allows more flexibility to relocate, renting is generally more costly than leasing. 
    • Commercial Real Estate: If you are running a business or looking for office space and retail space, leasing a commercial property would be a very good option to consider.  You will have a place for your business for a long period of time and a set of fixed pricing choices. However, if you are looking to test the location with limited, renting commercial real estate is also an alternative solution to consider. 
    • Others: Besides housing, apartments, and commercial real estate, it is also possible to lease or rent an area of land, industrial area,  vehicles, equipment, and tools. It is very common to find land for lease or rent, where the terms and conditions will be made according to the lessor but there won’t be much significant difference from how the leases for the above properties. 

Advantages and Disadvantages:

Whether you decide to lease or rent a property, you should get to know some of the advantages and disadvantages of each method in order to choose the best option for each individual.  Below are some advantages and disadvantages of leasing: 

Advantages: 

      • Leasing provides lessees with financial stability and an even more convenient cash flow for other financial budgeting while securing the property for the long term run 
      • Discounts are often given upon discussing and agreeing to lease a property 
      • The possibility of tax benefits may also be applicable to lessees too, therefore, it is advised to check with the accountant if there is any to further verification of the numbers of the matter   

Disadvantages: 

      • Lessees do not have ownership over the property, therefore, restrictions on the properties are to be obeyed. For instance, what is allowed to be installed or to be removed and which ownership will they fall into when the leasing term ends 
      • The leasing fee tends to be higher in the long run if the lessees decide to renew the leasing agreement
      • Penalties will be applied if there is misconduct or the lessee are unable to do as the terms and conditions of the agreement 

These are some advantages and disadvantages of renting: 

Advantages: 

      • Renting does not require the tenant to have expenses on home insurance, property taxes, or fire insurance, etc which is very cost-saving. 
      • If you are a student or someone who tends to change the workplace, renting allows you the flexibility and convenience of having a low-cost residence and moving out only after a month or two.
      • The process of renting a property is very straightforward and uncomplicated. 

Disadvantages: 

      • Tenants do not have ownership over the house and have to spend on property rent on a monthly basis. 
      • Renting a house does not offer long-term stability or opportunities for investment for other financial gains. 
      • Tenants are not allowed to redecorate or make changes to the property and must abide by the terms agreed in the contract to avoid paying penalties. 

Bonus Tips and Guide: Key Consideration Between The Two Methods

If you are stuck with indecisiveness on which one to go for a property whether housing, apartments, commercial real estate, or other additional property, you may find this guide to help the decision-making process. Here are some factors to consider that can help you decide which method suits you best: 

    • Purpose of the property: first of all, set a clear goal of why you are looking for a property in the first place. Depending on your purpose of the property, it will help a direction for the decision-making. 
    • Financial Capability: which method would bring you the best deal considering the budget available?
    • Stability or Flexibility: ask yourself if you are looking for a place to settle down for a long time or if you are still exploring. 
    • Short or Long-term: think ahead to what you want to do next with the property whether you want to invest by owning it or looking for the next deal. 

           Whether you decide to lease or rent a property, it all comes with benefits along with some setbacks, so it is wise to choose a method that brings out more overall and is within your ability. However, researching and considering properties to rent or lease can be tricky, contact CBRE for your own convenience and efficiency.