Renting is throwing money down the drain: not so sure…

“Rent is throwing money down the drain”, who has not heard this sentence referring to real estate? And yet this statement is often false and not really based on any concrete evidence. It implies that buying real estate is always preferable to renting, which is totally wrong.

Buy or rent? The answer is not always so simple.

Screen Shot 2015-02-13 at 20.07.12In the US, our culture elevates property buying to a high standard. The tenant is often regarded as a “loser” who must do everything possible to tilt the other side and become the owner.

However, in many situations it is financially better to be a tenant rather than an owner. Renting can also be a way of life, freedom from any geographical constraint, which is not negligible in a world that requires more in addition to mobility.

It is necessary to bend the shot to the misconception that “rent is throwing money down the drain”, in order to study the various possibilities of accommodation without any pre-conceived idea and not to err in its choice of accommodation.

The tenant is always winning in some cases

It is sometimes less expensive to rent than to buy housing, it is often the case when the length of residence in this housing is short (less than 4-5 years). Indeed, as we will see later, many costs are in addition to a purchase and the amount of extra costs is often more expensive than for a 2 or 3 years rent.

Another situation where the purchase is not recommended: when real estate prices are falling in your area. Indeed, it is better to wait before you buy when the housing prices are falling because pay a year’s rent is cheaper than to buy a year plus early one although it will be less expensive after. A drop in prices of at least 2 or 3% per year is sufficient to make it more appropriate to delay your purchase by staying in a rental property.

How to compare purchase and rental?

Screen Shot 2015-02-13 at 19.02.37If one moves on the financial plan, simply compare the total price of a rental and the overall cost of a real estate purchase on different durations for the same accommodation.

For rental, the calculation is fast since it is to multiply the number of months of rental by the price of the rent excluding charges. It is not necessary to add the charges or the housing tax, because these costs are identical for rental or purchase.

For a property purchase, you must take into account the price of the accommodation itself, but should also add the notary fees, any costs of agency, property tax, bank charges (mortgage and insurance of the loan) and provide a maintenance budget and renovation (be it a house or apartment).

For more information about this, see our article detailing the costs of buying a home.

Home buying is profitable only for several years

For any purchase, you should pay the realtor fees amounting to about 7% of the amount of the property in the former. If you go through a real estate agency, you also need to add the cost of agency (thousands of dollars).

Before you even have set foot in your home, you must pay many fees that will represent several months or even several years of rent. In addition, the first monthly instalments of payment of credit are often composed of a large part of interest and repay a little capital. You will need to live your principal residence for many years before it costs cheaper than a rental.

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