Housing is a major cost consideration for most people. And real estate as an investment is often presented as a lucrative prospect. So, should you buy your home, or should you rent?
“Buying real estate can be a sound investment choice for your portfolio, but there are certain things you should consider,” explains Richard Cayne of Meyer International. “Depending on your current situation, you may want to invest your money elsewhere as you continue to rent your home, especially if the rate of return with an alternative investment proves higher than the upfront lump sum for a real estate purchase.”
Renting: Pros and Cons
Many people think that home ownership is a required step towards financial stability. However, there may be times when you may want to continue renting.
Pro: Smaller financial commitment
While you may be looking at a mortgage payment that is similar to your rent, there is still the large upfront cost that you need to pay. This includes the deposit, taxes, and transfer fees. Also, you will be responsible for major repairs which could add up over time. Compare this to a set monthly rent you have to pay. That also leaves you with a lump sum that you can invest for a greater financial return.
Pro: Flexibility to move
If you are planning on settling down, buying your own home may be an ideal purchase. However, if you have any plans to travel or move to another city, you may find yourself trying to sell your home in a soft market. Or find that you are now a landlord. Do you want that responsibility, or would you rather concern yourself with just a security deposit when you move?
Con: Rents may increase more than mortgages
As a property owner, rising real estate prices are a good thing. But if you’re a renter, that may mean your living costs will increase. And while mortgages eventually will dwindle to nothing as you pay off any loans, you will always have to pay rent. This may not be a bad thing, but if you are faced with a reduced income for any reason or must stop working or retire, this may become an issue.
Con: Temptation to squander savings
You may have more disposable income if you don’t have to worry about a mortgage or home maintenance, but what you do with it is important. A mortgage is like an automatic savings mechanism where you pay into a real estate investment every month, but many of us will need a lot of discipline to make sure to invest that extra money wisely rather than spending it frivolously.
Buying: Pros and Cons
If you find what appears to be your dream home, it may be extremely tempting to take the plunge into home ownership.
Pro: You have stable shelter
With your own home, you have the certainty of a roof over your head, without having to worry about dealing with a landlord. You can renovate as you wish, from making your home more energy efficient to making the most of your land, if you own a house.
Pro: Your home is a real estate asset
That is part of this decision, isn’t it? That owning real estate means that you can expand the value of your investment portfolio. Having this asset also give you financial flexibility. If your home’s value remains the same or, hopefully, increases, you have more equity. Equity that you can use for other investments if you want.
Con: Rates and prices may fluctuate
As with any financial asset, property prices may rise, but they may also fall. But as long as you’re happy with your home, this may not be that big of an issue as you should consider home ownership as a long-term investment. Problems may occur, however, if your interest rate is variable. Depending on the economy, rates may rise, which means your mortgage payments may increase.
Con: Lost opportunities
It bears repeating from the pro side of renting – the financial commitment for home ownership may mean you have to give up on other opportunities, such as with travelling, living, or studying elsewhere or with starting a business or investing in a different opportunity which may provide a higher yield. Also, remember the costs beyond the mortgage, from purchase to mortgage to insurance and maintenance.
Still Not Sure? Ask an Expert
Can’t decide whether buying or renting is a fabulous or terrible idea? You should consult with a trusted financial advisor like Richard Cayne who understands the pros and cons of renting and buying. They can help you see how your situation is more suitable for buying or renting so that you can make an informed decision.