Have you decided to put a tentative foot on the property ladder but you’re a bit afraid of the massive commitment? Or perhaps you have decided to renew your lease but feel you may be throwing money away.
According to Robert Shiller, Chief economist and co-founder, MacroMarkets LLC, the inflation adjusted return on property can be as little as 0% but that doesn’t mean you should not invest in property. Firstly, you need to live somewhere and renting has less than 0% return, unless you take the extra money you would put into buying the same house and invest it very wisely. Also, a mortgage is a form of forced savings – giving you “shelter-as-return”. But you need to weigh this up against the interest you will be paying on the mortgage. Fortunately interest rates in the UK are low and it is a relatively inexpensive debt to repay.
James Altucher, Managing Director of Formula Capital, has written many books on investments and is fully opposed to buying property because he believes that the money you put on a down payment and solicitors fees will be money you never see again; money that would be better spent on investing in a business. But isn’t renting paying off someone else’s mortgage and you really never will see those monthly payments again? That is also true.
Generally speaking, a house is paid off after 20 years, meaning you won’t need to fork out for rent when you’re retired and have less disposable income. However, if you make a bad investment and choose a location that loses value despite your best intentions, or you are unable to sell the property in good time when you need to move, buying might turn out to be a bad decision. We could play the guessing game for the rest of your working day and still be no closer to the answer. The truth is that whether to buy or rent depends on many factors including your desires, financial situation, and even relationship status.
When Renting a House Can be a Good Idea or Buying a Mistake
- If you don’t have sufficient funds for a down payment, solicitors’ fees and, more importantly, the hidden costs associated with maintenance then buying will cause financial strain.
- If you are unsure how long you will be staying in a particular neighbourhood and you would not like the stress associated with renting out your property.
- When you haven’t found the right house to buy. Renting is a first date versus the lifelong marriage of a bought property; the first can be entered into lightly whereas when you buy you don’t want to be the fool that rushed in.
- If you want to live in a neighbourhood you can’t afford to buy in you might want to buy-to-let somewhere else and then rent a house in your desired location.
- If you want to see where a relationship is going; perhaps marriage is on the cards in the next few years and you’d rather buy together with your partner when you are more settled.
When Buying a House Can be a Good Idea or Renting a Mistake
- When you buy in an area that shows good steady growth and is sought after for rentals. Many areas of London will fit this description. That means if you need to move you could also easily find good quality tenants.
- When you will not easily overcapitalise. Buying a cheap house in an expensive area means you can easily do it up and increase its value.
- When you want to leave a legacy. Buying a house that you can pay off and leave to your children offers your family something that renting never could do
Ultimately owning a house, while it comes with pricey maintenance and a fair down payment, offers you an experience renting will never offer – it is a labour of love and everything you do to improve your property can potentially also improve your investment. However, it is a real commitment and might not have the lock-up-and-go appeal a young person is looking for. Remember, an online estate agent like Tepilo can help you to decide how to rent or buy a house, so you are confident with your decision either way.