Should You Rent or Buy a House?
Rent or Buy?
Renting versus buying question can be a tough debate. The reality is there is no simple answer to this question. It will depend on where you are at life, on your income, what is your goal and what do you want in life.
In this article, I will address what factors you should consider when deciding whether to rent or buy so as to make the smartest decision.
Can you really afford a home?
The first question you need to answer is, can I really afford a home? This means you take into consideration not only the costs owning but also the costs of purchasing a home.
If you want to know what costs you will incur in buying a home in Portugal please check out my other article here: https://hubpages.com/money/What-are-the-taxes-I-have-to-pay-when-buying-a-new-house-in-Portugal
Typically in capitals or big cities, the house prices skyrocketed to such high levels that it might be worth for you to rent instead of buying.
This is especially true if you do not have a relatively high income. In this scenario, it can take a lot of time for you to save enough for the down-payment and you most likely struggle to be able to repay the mortgage. In this case, rent do not buy.
What is cheaper rent or buy?
You have the money to the downpayment however due to the high prices practiced in some hot housing markets it might be you will be better off renting instead of buying... at least for now.
Let's say you want to buy a house in London and have the money for the downpayment. The mortgage you will pay can still be higher if you can rent for a cheaper price in the same area. If you opt to buy a house for investment in this scenario, you would have a negative monthly cash flow which can only be offset if the house appreciates at a rate that can mitigate the difference between your mortgage and the rent your tenants pay.
So what should you do?
In this case, you can be better off postponing the purchase of your house and invest the money you have for the downpayment in other ventures which can bring positive cashflow.
For example, open a company, invest in yourself and acquire a scarce and marketable skill.
Mobility is important?
As a tenant, you are free to move whenever you please and do not have to pay for home maintenance.
If you left university recently or you are at the stage of earning and learning, renting should be preferred to buying.
At the early stages of our lives, we are not always sure what we want to do but you should focus as much as you can in learning and earning. Mobility is key in this phase because you do not want to miss out If an interesting job opportunity comes and you are not able to make the move because you have already fixed costs you need to pay.
Besides, there are some costs you need to consider as well, which is maintenance costs. As a tenant, you do not have to pay for maintaining your home which can lead to more saving and invest in other ventures.
When should we buy a house?
Buying a house can bring a lot of costs but it also brings a lot of benefits. We say if you are young, buying may not be the smartest move but there are some cases, buying a house is the smartest decision to make so I will address them as well.
You are married so it is time to settle down and grow a family.
Both of you have good income jobs, stable careers. In this case, you want to buy a house to settle down and grow a family. This is assuming you have money for the downpayment and some left for an emergency fund.
You are an entrepreneur but not an investor
Entrepreneurs love to take risks. As soon as a good opportunity appears you like to invest your time and money so you can make a successful enterprise.
For the entrepreneur reader, your residence is not going to be an investment but a saving account. Looking at your home from this perspective will allow you to put some money aside as you are paying your mortgage gaining equity in your house.
This way you are not putting all your chips you have in your business and "saving" some for the house you are paying off.
You are financially successful
If you have multiple and stable income streams then buy a house. Whether it is for investment or to live in, buying is the most desirable option.
The only note is, do not buy something for you to live in that is more than 20% of your net worth. This will allow you to make more investments and bring more cash flow to your household income.
Do not forget... your home is not an investment!
Do you prefer to rent or buy
© 2019 Flavio Lopes