Shall I buy or rent a home? This is, for the majority of people, a one-in-a-lifetime type of decision while renting, for many, could be a cheaper and less stressing, alternative. For this reason I’m trying, with this article, to give the readers an unbiased view on these two alternatives related to one of the basic needs for humankind, having a roof above our heads!
Definitely, I am not going to push you towards either one of the two choices, buying a property is a very big commitment and a very personal decision that each of us should take without being influenced!
I will only walk you through a compare & contrast analysis of the two alternatives with the aim of highlighting some “fact-based” consideration points and helping in the decision-making process. There is no right or wrong, best or worst as both choices are providing a medium to long terms shelter for people.
At the end, the decision on which button to push, if rent or buy, it will be entirely yours.
The buy/rent debate
Plenty are the arguments and debates going on elaborating on the fact that, the money spent for rental, is money thrown down in a drain without having any kind of beneficial outcome or return.
Let’s start analysing this “Rent-Vs-Buy” dilemma together to find out pros and cons of each choice and possibly define a “which-is-for-whom” reply, if possible.
A major factor in anyone’s decision-making process, of course, is related to one’s personal finances. However, that might not be the only aspect to be looked at as many more lifestyle considerations will affect the final choice, such as: are you looking for higher flexibility or a long term stability, what are your career goals, family planning and, at the end, whether you absolutely want a place to truly call your own.
Compare and Contrast
Aside from your personal financial situation, which by definition is very personal and being very well known by yourself, there are some objective benefits and disadvantages of renting or buying that will be highly relevant in most situations and, because of this, to be considered and discussed.
The above is surely not exhaustive but covers at least 80% of the main points to consider when making a decision over renting or buying.
Best would be to give some values, where possible, to each of the pros and cons to have a very clear and numerically comparable vision of where your choice shall be.
4 Quick Tips On What to Look At During The Rent/Buy Decision Making Process
How long are you planning to stay in the same place?
Are you and your family planning to live in the same place for very long? Maybe because of children education, nowadays there are plenty of good location where your kids can attend schools from primary till higher education within less than 2 km of radius.
Or you have your own business and not planning to move it for long? Or, you want to be at walking distance from your parents’ home, and they are still healthy and active or else.
These are all very personal considerations to be looked at, but the tip here is on the minimum timeframe to be looked at for a buying decision, which is, 5 years’ time! If the replies to the questions above drive towards more than 5 years then buying might be a much better solution, later I will explain why.
Do a precise estimate of the cost of Renting Vs. Buying
From my personal experience, and from a more precise calculation as per table below, in the short term or less than 5 years, it might be more convenient to rent than buying. The boundary comes in at the 5th year and it may allow an extra 1 / 2 years max.
From a pure cashflow point of view, of course buying a house will require higher costs such as renovation and furniture. However, if these cash-out-going expenditures are properly planned out of two or three years everything will happen in a painless manner and, at the end, you will own an asset. Personally, I look at buying and holding a property as the best decision by far.
Weight the financial risks of your decision.
Just few thinking points here to consider when deciding on the above dilemma. When buying a home, it really doesn’t matter how well you prepare yourselves, there are plenty of hidden risks and, same goes for the renting decisions.
Even though, no doubt, you are building an equity when buying, risks you might be facing are:
- Although you did a thoughtful planning of your working career there might be an unexpected opportunity or, hopefully not, an economic downturn and you might need to move somewhere else. This might be causing a possible loss in case your “initial cash-flow” was on the high side due to renovations or else. However, if the above happens in the medium long term, you might be able to re-finance your property and get the extra cash need to pass through the temporary downturn.
- Finally, the renovation cost. My strong recommendation is for new owner to start taking possession of their new dream home first, live in it for one or two years and only after being sure of all modifications needed, do it. For those having a property in a high raise building or condominium, please remember that not all walls can be hacked. Contact the management with your planned modification to ensure no structural damage will be caused during your renovation works.
Do a full and honest assessment of your financial situation
Too often I’ve heard and read horror stories of young adults being badly cheated by very unscrupulous and self-proclaimed “property gurus” and several times I’ve helped some of those unfortunate preys of the above gurus.
Whenever you start considering the possibility to purchase a house, or a property at large, the very first thing you shall do is to test your stress point from a financial point of view. Assess everything based on what you have today and not what you are expecting to have or achieve tomorrow.
Make sure all your dues will be payable once the new big commitment comes in, the housing loan repayment. The bread earner/s of a family work hard to ensure their loved ones can always have the best. Please make sure there will be a monthly left over to be saved for emergencies, tough times or maybe a good holiday once in a while.
My rule of thumbs has always been, if allowed by the personal finance stand point, to buy instead of renting. Too many plus points in favour of the first option. At the end of the day, when renting you are paying the housing loan on behalf of the landlord with him, at the end, getting the equity and you nothing, worth it? Finally, no matter what direction you will take, make sure it will be an informed one based on your financial situation, current employment/income situation and lifestyle.
When the time comes for you to make a decision on rent or buy, take a little bit of time to go through this article, check your financial stress point and, once cleared everything, proceed. A famous quote says, “In Real Estate Do Not Wait To Buy But Buy And Then Wait” or the longer you hold a property the higher will be your capital gain!
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