There is more than one way to make a home.
The world is split along so many arbitrary lines that it is often difficult to find the “right” side of an argument.
One of the biggest debates we are faced with is the Rent-or-Buy-debate
Is it OK to rent long term? Should I save for a deposit on a house while I rent? How much should I spend on rent?
Entering the property market is the biggest financial step most of us will ever take.
That is why you need to make sure of your facts and be honest about what you want, what you need and what you can afford.
Take Your Time
Never rush into a contract. Most young people rent as their first step into independence. Renting can be a great way to stand on your own feet without the long-term commitment of buying your first house.
Think of renting like dating. There is a place and time for it, it allows you to figure out exactly what you like and want out of life and gives you the freedom to choose. Renting isn’t permanent and getting out of a rental agreement might require you to give notice and make some in-person phone calls, but its still a much quicker separation process than buying or selling a home. Buying, on the other hand, is like marriage. It is for when you are ready for that lifelong commitment.
Taking this metaphor further, you can see that both dating/renting and marriage/buying have their benefits.
Do The Math
Often, this is the easiest way to come to a decision. We all need to live somewhere, that “somewhere” should fulfil at least your basic needs of space, security, utility and comfort, and most importantly, not break the bank. Whatever you decide, it needs to make mathematical sense. No, we are not just talking about fluctuating interest rates and credit scores. You need to add things like – travel costs to and from work/school and whether your plans to stay in this are long term or temporary. Only once you have done the math, you can make an informed decision.
Benefits of homeownership:
- Stability (You own an asset). You have legal ownership of the property which means you can use it without interference from a landlord. This means you have the benefit of security, and even the possibility of your asset growing in value.
- You will have full creative control of your property. Your design choices and structural changes are all your own.
- Once you own property you move onto a different level within the real estate market. Not only are you no longer a renter, but you can generate income from your property. You can use this income to help pay off your home loan.
- Diligently repaying your home loan payments on time will improve your credit rating.
- By negotiating the terms of your home loan agreement, you can refinance and get revolving credit to help out with certain large expenses. (Just be sure to read the fine print and do the math!)
- Homeowners have certain tax deductions available to them.
Downsides of Buying a Home:
- Major expenses – when something breaks, you don’t get to call the landlord. Everything that goes wrong, falls apart or stops working will be dealt with by YOU. With great freedom comes great responsibility…
- Less financial and physical mobility. Buying a home usually goes along with taking on a massive amount of debt. This might mean that you do not have the capital to do other things, as you will be dealing with a monthly down payment to keep a roof over your head.
- Loss of value due to market factors or socio-political upheavals. (It is not a guarantee that the value of your property will go up.)
Benefits of renting:
- Less responsibility. (Renting is a better way to start your life, while you have many other things to focus on.)
- You can rent above your purchase price threshold, which means you can live in an area where you would not have been able to buy.
- More flexibility and mobility – you can usually cancel your agreement with 90 days’ notice and simply pack up and go.
Downsides of Renting:
- You’ll be bound by a lease agreement, which means you don’t have complete freedom to use the property on your own terms
- You will most likely have to go through a “middleman” or agent, which means things can take longer to be addressed.
- You have no creative freedom and won’t be able to make any changes to the space without getting the owner’s consent.
- There is no chance to build your own financial profile. Tenants are helping the homeowner pay off their home loan. You create no further wealth for yourself.
Whether you are still just dating around, playing the field one property at a time or whether you have found your one and only forever home, remember to Make a Home of the space you are in.
We found these sources handy:
https://fortune.com/recommends/mortgages/renting-vs-buying-a-home/
https://www.investopedia.com/financial-edge/1112/reasons-renting-is-better-than-buying.aspx
https://www.property24.com/property101/rent-vs-buy-guide/pros-and-cons-of-buying-and-renting/17510
Also read our article for First Time Homeowners
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