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The Property Quandary: To Buy or To Rent?

Buy or Rent

Buying vs Renting Property – 10 Expert reasons why to get on the property ladder and ten reasons some think it’s best not to bother.

At some point in our lives we are likely to ponder the question of should we buy into the property market or just rent. With passionate supporters of either side of the argument, the answer unfortunately isn’t as obvious as some would suggest with both avenues having their own benefits and drawbacks.

An important point to consider is this, it’s impossible to determine whether it’s better to buy or to rent without considering your own individual circumstances in detail. The process of deciding what’s Important to you will help you determine the best option.

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To Buy or to Rent
To Buy or to Rent

This article offers generic information and opinion, not advice. Before making big financial decisions you should consider seeking advice from a suitably qualified financial adviser.

Whether you are buying or renting you can see our complete guide to moving home without the stress by clicking here.

Ten Reasons to Buy Property

1. Property Is Great Long-Term Investment

Property can rise and fall in value, over the longer-term however (five years plus) property has historically risen in some cases quite dramatically. The world’s population is increasing at an alarming rate and in very few countries is the supply of property keeping pace with population growth.

The gap between the supply of property and the increasing demand for it is one factor that drives prices up. This is a trend replayed in many towns and cities around the world and is one that for the moment seems set to continue.

Property ownership allows you to benefit from the supply bottleneck as the value of your property increases. Conversely as property process increase it becomes increasingly difficult for first time buyers to get onto the property ladder. This lack of supply also drives costs up for renters, because as property prices and demand for property rises landlords can demand higher rents from their tenants.

There are many factors that influence the value of property and it’s worth pointing out that property is not always a great investment. Location, demand and state of repair will all heavily influence values as will the strength of the economy more generally. Property can fall in value and past returns are not a guarantee of future performance.

2. Be Your Own Landlord

Perhaps the greatest part of owning your own home is just that, owning your own home. Shutting the door behind you and not having to deal with landlords or anyone else for that matter feel’s awesome. Property ownership can offer you much more freedom and independence than renting.

If you have a mortgage you must however ensure you keep up with repayments or that freedom and independence could disappear very quickly. Property ownership offers some great benefits to the individual but like all things in life comes with equal responsibility.

3. Avoid Large Housing Costs in Retirement

A great benefit of property ownership is the reduction in your housing costs over the years as mortgage debts are repaid.

A 25 year mortgage on a property might initially cost the same as renting, however after 25 years the mortgage is repaid and repayments stop. Property ownership enables you to secure somewhere for you to live in your retirement when your income may be significantly lower and renting could likely be unaffordable.

Another important consideration is that the costs of owning or renting a property are largely driven by property values themselves. This is because the majority of housing costs are usually the mortgage payment or the rent itself, both of which are closely correlated to the market value of the property.

Buying property enables you to secure your payments on today’s values and whilst interest rates could increase on a mortgage you are ultimately only paying interest on the value at outset. If property prices double over the next ten years rent’s could be expected to also rise significantly.

4. Fixed Rates Can Guarantee Repayments

If you’re nervous about mortgage rate increases then a fixed rate mortgage could offer you some certainty around your payments for a fixed term. Many mortgage providers offer mortgage rates fixed at 2 – 10 years enabling you to budget more effectively. Landlords however may be much more reluctant to restrict increases to rents particularly over the medium to long-term.

5. Ability to Update the Property

Property ownership gives you much more freedom to change and update the property to meet your own needs and wants. Subject to adhering to planning rules you can pretty much do what you like when you own property whether that’s putting a pool in the yard or extending the property itself.

More Flexability to Add Value
More Flexability to Add Value

Renting does not offer that same flexibility and even if you could get the landlords agreements to make such changes what’s the point when you could be asked to leave next year and any the costs of any such changes could not be recovered.

6. Ability to Add Value & Benefit from This

Property not only offers you an ability to directly benefit from increases in property values but the ability to add value through updating your home. Extending or updating kitchens and bathrooms can see the value of your property increase significantly. Renting does not offer such opportunities as you cannot benefit from any value you add to a landlord’s property.

7. Buying May Be Cheaper Than Renting

Buying a property may require more money upfront for a mortgage deposit and fees, however it’s worth doing the maths to compare and contrast the costs of buying rather than renting. Even renting will usually involve some upfront fees and with mortgage interest rates currently at record lows it’s not uncommon for it to actually be cheaper to buy rather than rent.

It is important when comparing the costs of buying and renting to differentiate the responsibilities of each. A big difference is that as a property owner you will be responsible for all maintenance and repair costs for the property which does introduce a variable into the equation.

A good building survey to understand the condition of any property before you commit to a purchase is a very sensible step.

8. Owning Feels Great

This isn’t particularly scientific but it is true, owning a property feel’s great. Buy a house and walk barefoot on the grass and it feels totally different to a rental. Having a home that you can truly call your own is an amazing thing. You make the rules, it’s your way or no way so to speak. Compare and contrast with renting and this feels worlds apart.

If you want to go your own way and not answer to a landlord buying a property may be for you.

9. Greater Engagement in Local Community

Following on from the point above I personally believe that property ownership is essential for communities to thrive and for residents to fully engage. Property owners have a significant vested interest in the prosperity and success of an area or development because it impacts them directly, they can’t get up and move on as easily as a renter.

My own experience living closely with renters and owners was this. Typically the property owners were more conscious of their impact on those around them and made greater effort to maintain their property and good neighbourly relations. Buying a property is a significant commitment to an area so it’s in your long term interests if that area is safe, clean and prosperous.

If you want to feel really part of a community buying a property may be for you.

10. Put Down Roots

Putting down roots feels great, now there is no reason you can’t do this as a renter but buying a property is a significant commitment to a neighbourhood. Renting offers greater flexibility and as a result the roots don’t tend to go down quite as deep so to speak.

Put Down Roots
Put Down Roots

It’s a great feeling to truly commit to somewhere you love and build a life there with the intention to stay and to thrive. Picking schools for the kids, making friends and building a community together.

Ten Reasons to Rent Property

1.  More Flexibility Should Circumstances Change

Should your circumstances change such as your place of work or income, renting offers you more flexibility to respond. Imagine if you had a change of career and saw a significant reduction in income, it’s much easier and cheaper to change a rental than to sell a property and move on.

Property can be highly illiquid in that it can take months if not years to sell a property and achieve good value. Where you need flexibility to move on or to free up capital or income quickly renting may be more appropriate for you.

2. Property Can Fall In Value

Property is often sighted as a great investment and I believe it is. The property market does however move both ways and house prices can fall, sometimes quite dramatically.

I bought my first property in 2008 and quickly saw 30-50% of its value disappear in the financial crisis. I had bought at the peak of the market and after a decade in the property walked away with a small loss. I was very unlucky but it did teach me a valuable lesson, property is not guaranteed to increase in value forever, the market does and will on occasion fall back.

I was able to wait a decade for my property to recoup most of my investment however I had neighbours who could not wait it out. I saw some properties sold at half price three years after they were initially bought, no doubt this will have had a devastating impact on those families financially.  

3. Less Exposure to Interest Rate Rises

Interest-Rate risk is the risk that interest rates could rise or fall impacting on the cost of some borrowing and the return of some investments.

The cost of buying a home is heavily intertwined with the cost of credit, essentially interest rates. Since the borrowing rates that mortgage providers offer are heavily impacted by inflation and the interest rates set by central banks, which are in turn driven by the state of the economy there is a risk that changes to any of these things can significantly increase your mortgage repayments.

Fixed rates can offer some certainty over mortgage borrowing rates for a set period of time. Even as a renter you are still exposed to indirect interest rate risk because as the costs of property ownership increase in an economy, landlords will in turn seek higher rents to reflect this.

4. Not Responsible for Repairs/Maintenance

A great benefit of renting as opposed to property ownership is that the landlord are responsible for maintenance and repairs to the property not the tenant. This can be especially attractive if you are on a low income and would struggle to meet unexpected property costs such as plumbing or electrical repairs.

It is worth noting however that this easier life comes with some drawbacks. The landlord may be responsible for maintenance and repairs but that doesn’t mean they will happen or determine when they will happen, there are some very poor landlords (and tenants) out there.

5. Significantly Less Upfront Financial Commitment

On a monthly basis the costs of owning or renting property may be relatively similar however the upfront costs associated buying property are usually significantly higher than renting. Where you don’t have capital available for a large mortgage deposit and to cover legal/surveyor fees and property taxes renting may be a better option for you.  

6. No Exposure to Falling Prices

Property prices do move both ways, whilst the long-term trend has been upward there is no guarantee that this will continue. When you rent you don’t benefit from any increases in property values but you also don’t lose out where prices fall.

7. Much Easier to Resolve in Divorce/Separation

Resolving issues around property ownership can be both messy and costly in the event of divorce or separation. Often the property may need to be sold or remortgaged to release one person’s share of the property value and to remove them from the property title.

Agreeing the way forward for rental properties presents its own issues in separation cases but is simpler in that the rental itself is not typically seen as an asset as neither party owns it. As rental agreements are typically much shorter it’s much easier to resolve the issues around this than if the property was owned by the separating couple.  

8. No or Very Limited Costs to Exit

The barriers to leaving a rental property are limited. When the rental agreement comes to an end you can give notice of your intention to leave and then do so within the terms of your agreement. You do not have significant costs to do so as you would with a property that you own, where legal fees, taxes and mortgage redemption costs could all be applicable.

9. Renting May be Cheaper than Buying

You need to do the maths but put simply renting may just be cheaper than buying. In some areas property prices have gone insane and totally lost their correlation to incomes. Typically rents will follow property prices relatively closely but there are discrepancies.

The correlation between rental prices and property values is that typically at the very bottom end of the market rents are high in comparison to the market value of properties. Conversely at the very top end of market the rents on the most expensive homes are lower in relation to the value of the property. This is because rents reach a saturation point where people are unwilling to pay above a certain amount to live in a property that they essentially don’t own.

10. Renting is good to Test an Area

If you’re not entirely sure on a particular area then renting is a great way to test if it’s for you without making such a big commitment as buying the property. It’s very common for people moving town’s cities and even countries to initially rent for this reason. Renting for 12-24 months before buying lets you feel out an area and decide if it’s for you before you make the significant commitment of buying a property.

Renting Helps You Get a Feel For An Area
Renting Helps You Get a Feel For An Area

Conclusion

Thanks for reading. Please let me know what you think by commenting below and please subscribe if you would like to be notified of new articles as soon as these become available!

Whether you are buying or renting you can see our complete guide to moving home without the stress by clicking here.

This article offers generic information and opinion, not advice. Before making big financial decisions you should consider seeking advice from a suitably qualified financial adviser.

I hope you found the information in this article useful. You may also like How to Achieve AnythingHow to Accumulate Wealth From Nothing and How to Stop Making Dumb Investment Decisions.

Good Luck and Thanks for Reading!

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