When you have reached the decision that it’s time to move out and either rent or buy your own property, there is no easy answer to suggest which will be the right move for you. Conventional wisdom suggests that buying is better for you over the long term, but that doesn’t take into account any of your own particular circumstances.
If you buy, you should be purchasing an asset that increases in value over the long term. When you choose to rent a property, each month’s payment is money lost and gone forever, but you have far fewer long-standing responsibilities.
Do you need to rent or buy?
Are you only moving out so you can choose which colour to paint your bedroom or have you found the love of your life and want to begin a family home together? When you take on the responsibilities of renting or buying, you will be taking long term actions that you cannot just walk away from; are you prepared for a long financial commitment?
Do you have the option to buy?
Unless you won the lottery recently, you will almost certainly require a mortgage for your new property. Banks have stringent rules about lending money and you will need to prove your credit worthiness and your employment stability.
Most of the local banks have similar rules and regulations so it’s difficult to play one off against another to gain a better deal. You should expect to need at least 10% deposit and cover additional taxes and fees. The bank would require a professional property valuation to be conducted which is also at your expense.
Moreover, buying a home requires constant maintenance. If you have a water leak, it becomes your responsibility.
Renting might be more flexible
You will be required to sign an agreement to pay the rent for a fixed period, from 6 months to 2 years, usually. If you want to move out before then, you will still owe the monthly rent, but that might be better than agreeing to a 25 year mortgage term.
Renting gives you the chance to see if you enjoy a neighbourhood. From the financial perspective, you will be required to make a deposit (typically 1 month’s rent) and pay rent in advance every month. The property cannot be altered to fit your exact needs, without explicit permission from the landlord.
While you will not be gaining an asset, your landlord will be responsible for major expenditures on the property.
It could be argued that now is a good time to buy when property prices are low, but rental prices have also fallen as landlords need to fill their homes to pay their business mortgages.
Whatever decision you make, talk to someone knowledgeable in the real estate market. Carefully analyse your current circumstances, lifestyle, and long term objectives before signing any deal.
The writer is the founder and CEO of Axcel Finance Ltd., the leading regional microfinance institution. Share your thoughts and email your questions to [email protected]