Renting vs Buying a Home: Two Lifestyles, One Choice!
You have two choices that can affect your finances, lifestyle and future.
One option is perceived to be a life of flexibility, less responsibility but no equity while another provides security, wealth creation yet, a large financial responsibility laden with maintenance costs.
When it comes to real estate, which character would you be? The homeowner or the renter?
It can be a challenging decision, particularly if one is careful about finances and seeking the most cost-effective route to take. Whether you choose home ownership or renting, the grass always seems greener on the other side. Therefore, it may not necessarily be a case where one option is better than the other. It may simply be that one option is better than the other for your situation.
Should I buy or rent at this stage in my life?
Where you are in life partly answers the question for you. Consider your age, marital status, income level, career stage. It can indicate whether purchasing a house or renting one is more sensible. Some may assume that a married professional looking to expand the family may see home ownership as a logical choice, whereas an unmarried, unskilled worker may choose renting. Of course, this formula will not apply to all individuals, but having the self-awareness of where you currently are in life will indicate what makes financial sense.
Speaking of financials, at the end of the day, the decision to buy or rent rests largely on your financial stability and earning potential. Many ‘experts’ will tell you renting is essentially throwing money away. However, you are in fact getting something in return for the money you spend – a place to live.
Similarly, when you choose to buy a home, you are essentially acquiring equity on an asset that you hope will appreciate in value in the coming years. Therefore, sometimes the decision to buy or rent can solely rely on your capability to afford a home of your own or not.
Costs Associated with Home Ownership and Renting
To pursue home ownership involves pre-qualifying and being approved for a mortgage loan, substantial paper work to certify your financial worthiness and ability. Mortgage monthly instalments are calculated based on your assets and liabilities, which would reach a maximum of 40% of your income. Rental costs are determined by a variety of factors including the landlord and area of the rental property. For example, rental prices in affluent neighbourhoods in West Trinidad will inevitably be among the highest in the island.
Subsequently, you pay a security deposit usually equivalent to one month’s rent. You may also pay renters insurance with your monthly rent to protect your personal property as a tenant against fire, theft or defacement. A down-payment on a mortgage though, will most likely be larger.
Given that the mortgage application and approval process is so intricate, it usually takes an individual of qualified merit to be approved. Your credit history can play a major role in deciding if you will even qualify for home ownership. If your credit history needs significant improvement, it will be more strategic to consider renting as opposed to buying. If your monthly rental payments can be paid timely and consistently, this will work in your favour in the long-term to improve your credit rating and eventually pre-qualify you for home ownership financing, if that is still your goal.
You should rent a home if you value:
Renting a home supports a flexible lifestyle. You don’t have anything tying you down legally or financially to one location. Additionally, if you travel frequently, renting a home provides this as there may not be significant maintenance, security or utility bill payments to uphold. Moreover, if you wish to relocate, perhaps even in areas you couldn’t afford to purchase a house, renting enables mobility to do so, once you have fulfilled the notice period.
A homeowner does not have this flexibility, as changes residence would entail putting the property on the market and finding a buyer to go through the process of home purchase (Insert link to A Millennial’s guide to purchasing your First Home article), before he or she moves. For a homeowner, the process is changing homes is more complicated.
Opportunities to build savings or investment
Unlike home ownership, after you pay for the cost of occupying the property, you do not have additional expenses. Renting allows you to capitalise on cash liquidity. You have the opportunity to use funds after paying rent, to build your savings or invest.
When you choose a property to rent, there are a lot less hassles no legal or environmental duties to perform, repairs, licenses, checks or further payment beyond your monthly rent.
You should Purchase a Home if you value:
With homeownership, once your keep your mortgage premiums up-to-date, you have greater security in that you legally own the property. This is your home and you are the owner. You don’t have the possibility of being evicted or having to locate a new place in the event of property damage, if your landlord decides to emigrate or passes away.
With your own home, you have full creative control and freedom to renovate, style and decorate the property as you wish. If your family is expanding, you can add rooms, upgrade your infrastructure and change your surroundings according to your personal tastes.
You have an asset that could potentially earn revenue, should you choose to rent or resale value. As you pay your mortgage premiums and your equity increases, it acts as security to refinance on your loan, should you wish to undertake a large project or purchase.
Stable monthly costs and credit rating
Once your debt payments are consistent, this contributes to improving your credit rating. Moreover, with paying a mortgage vs renting, if you take a fixed rate loan, you pay a fixed monthly premium for the duration of the loan, whereas with rental costs, prices can increase at the landlord’s will, if the market value of the area or living costs increases. This can be a worrisome reality for a renter, particularly if there is no guarantee that your lease will be renewed.
With renting you get lifestyle flexibility, with home ownership, you get creative flexibility. Renting a home is relative hassle free and without the costs yet security of homeownership. Whether you decide to buy a home, there are several personal and legal factors to consider. How you view either option depends on what you value in life – mobility or a sense of stability. Either way, choosing to buy or rent a home should be looked at both perspectives in order to determine what is truly important, so you will make the right decision.