Monday, March 10, 2014

Buying or renting a property?

In todays apartment/housing market there are many people who tell you it is more economical for you to rent an property than to buy it. They say that instead of tying your money in a property you should invest the money and build it up so that in the end your investment will pay for the rent. They are right, and wrong.

If you buy property?
     Negative points: You'll have to pay purchase fees, maintenance and property taxes. Your property might lose it's value proportionally or fully. If serial killer moves into next apartment/house, if the local supermarket, school or the largest employer in the neighbourhood closes, your property will lose some of it's value. Depending on your mortgage you might be stuck in a property that you hate and eats all your income. Defaulting on your mortgage payments because your property is worth less than the mortgage and letting the bank take the property will get you into deeper trouble. You'll still owe the bank the difference, plus all costs, only now the bank wants it all in one sum instead of monthly payments. If hurricane or tsunami destroy your property and you have little or no insurance you might find yourself homeless but deep in dept. Property ties you down, you might have to refuse good job offer because you can't sell your property fast enough.
     Positive points: The value of the property might rise. New highly paid job opportunities close by might make the value skyrocket. Regular payments of a mortgage usually go down as you slowly pay down the capital dept. Once your property is dept free, your salary is all yours.

If you lease property?
     Positive points: You only have to pay regular monthly payment (plus maybe small finders fee) and no matter what happens to the property you can always leave with few months, even weeks, notice.
     Negative points: Rent always rises. Some landlords of rented properties do not like you to make changes to the property to fit your tastes or needs, others do not maintain the property properly. The landlord might decide to sell the property or for other reasons kick you out. In todays highly volatile stock market you are much more likely to lose all your investments than to lose your property.

A lot depends on your age. I would say that no later than by the time you're 35 years old you should have bought a property with the aim of owning it outright by the time you're 55-60 years old. You do not want to log into your investment portfolio when you are 60 years old to find your investments worthless while you're living in high rent property or your mortgage is higher than the property value.
The crossover point of purchasing property being cheaper than renting is usually somewhere between 4-8 years. After 35 you are much less likely to move than before 35.

Lower taxes by living in a cheaper property further away from city centers (which incidentally also lowers your mortgage). Spend wisely on maintenance. 

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