Undoubtedly, everyone needs a house to live in. But do you have to own it? Are you better off renting a property so you have the flexibility to move out when you can?
There are many sites like Compass that offer both renting and buying options, so getting an answer to this question can propel you in the right direction!
Is it economical to buy or rent?
The classic wisdom states that buying a property is the best option as your monthly mortgage payments come back to you in the form of assets.
But is this really true? Let's break down the mortgage aspect in the first place. It comprises of a principal and an interest component, and this interest that you buy is nothing but free money that you are giving away to some company. In this sense, it is an expense!
So, you must essentially compare the interest component of the mortgage with the rent as both these are money that goes out of your pocket with no benefit for you today or at a later date.
The advantage of buying real estate properties is that they are expected to appreciate over time. For example, let's say you buy a property today for $100,000 and pay a mortgage of 5% for 20 years. At the end of this period, you would have paid $265,330 after which you own the house.
This is a lot of money going into the pocket of the mortgage company. If you were buying the house with your own money, then that's a lot better and safer. The capital appreciation would be all yours to take home, not something you share with some greedy mortgage company owners.
That said, there are other avenues of investment both within and outside real estate, and you can leverage these options if you decide to rent the property.
The rent vs buy decision also depends to some extent on the risk appetite of an individual.
Undoubtedly, a mortgage is risky because the interest rates can go up over time. Also, since this is a 20 or 30-year commitment, it can be stressful as many things can change in your life during this time. Regardless of what happens, you must continue to pay the mortgage every month, otherwise, you risk the possibility of losing your property!
With a rental option, there are no such worries. If any major event happens in your life like a job loss, simply move to a place that is a lot more affordable for your pockets! There is no commitment whatsoever in it.
Buying a house is seen as a measure of stability as it anchors you to a particular place and gives a routine to your life. This is why most people prefer to buy a house when they are ready to get married and raise a family. A house also gives you a status symbol and can create a good social network for you.
To conclude, rent vs buy is a classic argument that can go on forever as it is both a financial and an emotional decision. Buy a house if you're looking for some anchor and routine to your day and have the right qualifications to find a new job quickly. In all other cases, renting may be a good choice.