Is investing in a home for you and your family a good idea? Or perhaps, is it best to continue renting? There are many factors to consider for both options. The right answer hinges on your current financial situation, career choices, as well as your family’s plans.
Impact after buying
Owning a home is a long-term goal for most people due to the stability it offers. This type of goal requires a financial term known as “mandatory savings.”
Purchasing a home is typically an excellent investment when it is possible. Over the last 40 years, the average selling price of a house has increased almost tenfold. For villas and apartments, the price was multiplied on average by four and six, respectively. As a result, homes have appreciated three times faster than other properties.
As the owner, a person can make decisions to customize your living space. They can make renovations to transform it to their personal taste. Often, these renovations will contribute to their home’s overall worth. When renting, they may feel less emotionally invested.
By buying a home, the owner is investing their capital into something concrete and sustainable. Later, they can rent, sell or offer it to their children. However, it is impossible to predict how the real estate market will evolve. It may be that when they are ready to sell their property, the house earns less than the purchase price. Also, the final condition of the house contributes to the buying price.
But a long-term investment
Buying a home is not a decision to take lightly. Being such a large investment, the purchaser may be required to subscribe to a loan. For most loans, a personal contribution of at least 20% of the sales price is often required – an amount that can quickly reach over $40,000 – and it must include registration fees and other notary fees in order to obtain this credit. Many young people cannot do this without their parents’ help, even though mortgage rates remain low.
Rental, an intermediate solution?
Renting a home is often a temporary solution, and in some cases, it is also the best. The main advantage of renting is without a doubt the flexibility that it offers. If a person chooses to rent, they do not “tie their neck” with credit, and they can modulate their place of life according to their family, professional and financial situation.
What if a person ends up living too far from their new place of work? Or, perhaps, their home is getting too small, the rent is too high, or their new neighbors are too noisy? Moving quickly is no problem; finding a new roof can take a matter of months. Thus, a young person who arrives fresh onto the job market and wants to gain experience may be interested in renting their first home.
As a tenant, however, a person is dependent on the owner: it is the owner who will decide their fate regarding the property. He may refuse to extend the lease or decide to occupy the property himself, or even sell it. In this case, there is a good chance that a person will have to move unless they decide to buy it back.
Rent: how much does it cost?
Renting a home is much faster and involves fewer costs than a purchase. Compared to the purchase price of a home, the rent of an equivalent building will generally be less than the amount to be paid each month to repay their loan. A person can then place the difference in a savings account or invest it.
A tenant has much less responsibility than a property owner does. In general, they must only take-out liability insurance and ensure their property. At the same time, an owner must also ensure the entire building and take out the remaining balance insurance at the time of purchase. As a tenant, they are never faced with high-unforeseen expenses, such as maintenance issues.
Under the effect of indexing, the rent of a home will increase over time. By some measurements, rent may increase by up to 50% over the next 20 years. It is important to note that that the rent a person pays is lost forever. It does not appreciate or add equity. In addition, if a person rents a property, they must pay their rent every month – even if their income decreases or they retire.
So, is it better to buy?
From a purely financial point of view, it is usually preferable to own a home rather than rent it. However, this requires a large budget. To make such a financial investment, a person needs to be sure that they want to settle in one place for a good part of their life. Once their mortgage has been fully repaid, they must no longer pay annual property tax and need only to worry about maintaining their home. Renting may be a more practical choice to fit one’s lifestyle and financial situation.
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