There are certain things that most people take for granted on the path of life. Finishing school. Going to college or university. Getting a good job. Getting married. Buying a house. But as society changes, it is worth looking at whether these are things that everyone should strive for or whether some merit a re-evaluation. It is the last point, buying a house, that is perhaps most worth examining.
Buying a house is always something that most people have strived for, and this was a dream that made sense in an era where capital did not cross borders and when there was lots of empty land. Houses were cheap for people in their 20s, and they could easily afford to buy a home large enough for a family. Things have changed. In this era of mass communications, finance is internationalized and it is easy for someone to buy real estate in a completely different country. As the population grows, there is less free land, and the land that remains is often very far from where jobs are, thus requiring a lengthy commute.
Therefore it makes sense to examine whether buying a house or renting makes the most sense for someone just starting their career journey. This is an extremely important question, as financial decisions made early on in one’s career can often sow the seeds for a comfortable retirement.
Firstly let’s look at buying. There are several advantages to buying vs renting. One of them is that you have a place to call your own and can renovate and customize to your heart’s desire. Someone who likes to cook can put in a dishwasher or change the electric stove for a gas one without a problem. Putting hooks in the wall to hang things will no longer result in forfeiture of the damage deposit. Repainting the horrible pink color in the bathroom becomes easy. Change is easy and possible as the owner of a home.
The second advantage is that you are making an investment. If the value of the property goes up, then there is potential profit upon selling. This is an especially important factor when we look at what happens over someone’s life. Most people tend to get married, have children, and then retire. Children and retirement are key points in life that may require a change in residence. The arrival of children often requires people to move to a larger house. At retirement, many couples no longer have children living at home. Both these events often require a house to be sold. This means that if the price of the house has gone up, there is a potential windfall.
Finally, the ability to obtain a mortgage allows most people to buy a home without having all the funds. This puts the possibility of ownership in the hands of more people than ever. Each monthly payment goes towards the equity of the house, rather than a landlord’s pocket.
Now let’s look at the benefits of renting. The biggest benefit is flexibility. You can easily move homes if not satisfied with the current one. This is great if trying out a new neighborhood and it doesn’t pan out or if the building has maintenance issues. As for maintenance, you don’t have to deal with it. The landlord should pay and fix all the issues that may crop up in a rental.
The second benefit is financial – but not in the same way as owning a house can be a financial benefit. Depending on how much is borrowed and the term of the loan, monthly payments for a mortgage might be higher than rent. If there is no prospect of a house increasing in value, the benefit of buying using a mortgage is not worth it. After all – there is interest to pay on the loan. In such situations, it might be better not to buy at all, but instead, rent the house you intend to live in. Rather than putting savings towards paying off a mortgage, more money could be made by putting it somewhere else. For example, the stock market or a fixed term deposit might be good places to sock money away.
For the reasons outlined above, young professionals have a lot to think about when they choose where to live. The conventional wisdom is that the buying is better than renting. This is not always the case. The decision is not clear cut and is dependent on individual tastes, one’s stage of life as well as the state of the local real estate market.
