Over 18 months of lockdowns. Almost two years of working from home. Rising property prices. All of these factors are highlighting the need for owning properties like never before. However, countless aspiring investors (especially those living in urban/suburban areas) are still stuck in the dilemma of renting vs. buying. Which is better? Let’s explore the two.
Renting a Home in a Nutshell
Renters are not building equity by making rental payments every month. But that necessarily means that they’re throwing money away.
- Renters know exactly what they’re paying for housing every month. Rental fees are clarified in lease agreements. Renters can easily plan out their long-term spending strategies according to their monthly housing expenses.
- Many landlords include additional fees in their final rental charges. Most renters don’t have to worry about utilities, storage, etc.
- Renters face rent increases every time their leases are up for renewal. However, in most urban centres, there are rent ceilings in place. Landlords cannot astronomically increase the rent. Hence, renters can plan out their financial investments in advance.
- Renters can also move whenever their rental leases end. With strategic planning, renters can increase their quality of life every few years. Move into more luxurious rental properties whenever you can afford them.
These are the reasons why countries like Germany and Switzerland are becoming firmly rental societies. In these two countries, over two-thirds of the population doesn’t own homes.
Owning a Home in a Nutshell
Owning a home comes with several tangible and intangible benefits. For example, a homeowner can alter their home’s interior design. Renters can’t do that. But, it’s hard to quantify such an intangible benefit.
- Homeowners also receive tangible tax benefits in the form of mortgage interest deductions. And of course, there’s the sense of stability and gratification of when you own a home. However, owning a home comes with way more responsibilities and costs than renting.
- Homes are illiquid assets. Once you buy a home, selling it isn’t as easy as ripping up your rental lease. If the housing market goes down in the near future, you may be stuck with an underwater asset.
- Even if your mortgage payments are lower than your past rental payments, you’ll incur way more costs as a homeowner. Some of these costs include – property taxes, homeowners’ insurance, cleaning and maintenance fees, repairs, earthquake insurance, etc.
- Homeowners also have to invest a lot of time into securing and maintaining their prized assets.
Which is Better?
Despite these difficulties, people are desperate to own homes, especially in major urban centres. For example, Singapore has a homeownership rate of 90.8%. Owning a home will always be a certified way to build long-term wealth. So, when should a renter make the switch and start planning for homeownership? Typically, renters choose to buy homes when –
- They’re out of debt and capable enough of taking on a new home loan.
- When mortgage rates are low.
- They’ve saved enough to afford sizable down payments.
- Renters who have employment stability are likelier to invest in homes.
- They have emergency funds saved up.
- They have a good credit score and can qualify for multiple home loan programs.
If you’re a renter who meets these criteria, you should consider buying a home. However, several external factors will positively/negatively affect the value of the home you want to buy. Ever since the COVID19 pandemic broke, low-interest rates have driven up the prices of residential properties across the world.
The COVID19 pandemic has also transformed the global population’s attitudes towards homeownership. Lockdowns, remote work, and other pandemic-era wounds are fuelling real estate investments all across the globe. Is the real estate property you’re currently interested in buying over-valued?
If yes, wait to make the switch from renting to buying a home. If not, owning a decent property can radically boost your overall portfolio. Either way, it’s a personal choice. Aspiring investors must consult with experienced real estate agents before making such important decisions.