Buying A Home or Renting An Apartment, this a question we often ask ourselves when thinking about housing. Surely a thousand questions come to your mind. Therefore, we decided to create a space in this blog to give you a better vision.
Analyze Price to Rent Ratio
One strategy for calculating the desirability of buying or renting is to use the rental price ratio formula. This formula works by dividing the average value of a property by the average annual rental value. Basically, it works like this: the lower the number, the better to buy, and the higher the number, the better to rent.
The Rule of the 5 Years
5 years is the estimated number of years a person should live in a property. This estimate is made in order to not lose money. With maintenance costs, taxes, and interest paid during the first few years of the mortgage payment, very little of the principal or actual value of the house is paid. Therefore, if you will stay in that property for more than five years, you may have a small surplus left over after all those expenses. This means that buying could be more financially beneficial than renting.
Buying a Property as an Investment
Buying a property and then renting it out is the best way to recoup your investment. It is very likely that in the long run, your property will fetch more than you paid for it. However, another type of investment may be more profitable since it is difficult to predict what the real estate market will be like when you pay off your home. It will probably go up in price due to inflation, but you don’t know how much. Therefore, this decision is uncertain.
Consider the Flexibility vs. Stability
If you rent:
- You are free to move out pretty much whenever you want without major consequences, but the landlord can also ask you to leave.
- The amount can vary greatly if the landlord increases the rent.
- You will have restrictions on remodeling and will not recoup this investment unless you have made some arrangement with the landlord.
If you buy:
- No one can make you leave your house, but if you sell your home before you have been there for at least five years or so, you will end up losing money.
- With a fixed-term mortgage, your monthly payments will not increase.
- You can remodel your house whenever you want
In many cases, the monthly mortgage payment is lower than renting. However, it is important to keep in mind the additional expenses that add up when you own, even if they are not necessarily monthly. These expenses can include property insurance, mortgage insurance, home inspections, realtor’s commission, loan origination fee, mortgage interest, closing costs, property taxes, utilities (some are included when you rent), renovations, and maintenance.
Before you make the decision, make sure that difference won’t find you too tight to pay your other expenses and still have money available.
Analyze Your Situation
The choice between buying or renting will depend on your desires and aspirations in life. For some people, their big dream is to own property while for others it is not so relevant. People’s lifestyles also play an important role. For example, for a digital nomad, it is much more convenient to rent. In any case, it is very important to analyze your situation, your budget, and your desires. This will help you to make better decisions.
Now that you have a little more knowledge on this subject, you have more information to make decisions. In Corporate Stays, we have years of experience in real estate and we are at your disposal to help you.