Everyone needs a roof over their heads. Although staying with family may be the most affordable solution, at some point, you may have to get a place of your own. When you’re thinking about getting a place, there’s one big question you’ll have to answer: Buy or rent? Here are a few questions you should ask yourself to help you decide.
- What can you afford?
Renting has much lower upfront costs than buying. So to decide whether to buy or rent, you first need to check whether you have enough saved up to pay for these upfront costs.
To buy a home you’ll need to pay for upfront costs like a minimum 10% down payment, Sales and Purchase Agreement costs, legal fees, stamp duty and so on. (Use our upfront cost calculator to find out how much your total upfront costs will be!) Apart from that, you’ll have to make your monthly repayments for your housing loan. So if you’ve saved up enough to pay for the upfront costs, and the monthly repayments fit your budget, you would be able to buy a house. If you can’t afford the upfront costs yet, you could create a savings goal and start putting money aside every month.
With renting, you’ll usually have to pay up to a three-month deposit on rent and a utility deposit equal to one month’s rent. So, you’ll most likely have to pay four months of rent as a deposit. This is lower than the upfront cost for buying a home, so if you can’t afford the upfront costs of buying a home yet, you might want to think of renting first.
- Long term or short term?
When deciding if you want to get a place for the long term or short term, start by thinking about your situation. A long term commitment like buying a house may be suitable for you if you’re moving closer to work and believe you’ll be working there for a long time, or if you’re looking to settle down and start a family. However, if you move around for work a lot, renting may be more suitable.
The major difference between buying and renting is that with buying, all the payments you make will go towards owning a property. Ownership gives you both security and a chance to increase your wealth. So if you’re thinking long term, buying a property would give you more value for your money, even though it’s more expensive upfront compared to renting.
In comparison, when renting for the long term, you’ll keep making rental payments but end up with nothing in return. So, you might as well be paying towards a housing loan.
On the other hand, renting a place would be easier if you have short term plans, like if you’re going to move somewhere else soon. You’d just have to tell your landlord and you can leave after the notice period stated in your tenancy agreement.
If you bought a house, you would have to find a way to sell your property. Selling a property can take a long time and that would mean your money will be stuck until you’ve sold your house. You could also rent out your house, but you’ll also have to think about finding a responsible tenant and other landlord costs like maintenance fees (if you live in an apartment), quit rent and insurance.
Apart from that, if you’re selling it soon after you’ve bought it, the value of your house might not have appreciated by much, so you might lose money as you might not be able to recover the upfront costs and interest you’ve paid towards your loans when you sell it.
- How much are you willing to commit?
When you buy a house, you own the property. So, you can renovate or redecorate whenever you want. However, that also means you will have to pay for maintenance and repairs, in addition to annual fees and taxes like assessment tax, quit rent and fire insurance.
If you rent on the other hand, you can’t make any changes to the property, and even if your landlord doesn’t pay for maintenance and repairs, you won’t have to pay annual fees and taxes like with buying a home.
- Stability or flexibility?
Buying a place is a stable option as you will always have a place to stay that belongs to you. Renting on the other hand is less stable. For example, even if you’ve signed a tenancy agreement, if the owner wants to, the owner could sell, raise your rent or get another tenant as long as he follows the terms in the agreement and lets you know ahead of time.
But, if you would like to have some flexibility of having the choice of moving in the near future, renting may be a more suitable option. All you would have to do is either finish your tenancy period, or let your landlord know ahead of time and move out.
When it comes to renting or buying, there is no fixed answer that would work for everyone. So use the questions above to help you make a decision on if you should rent or buy a home!