Buying vs. Renting a Home

“I’ll be forty years old this year, and all my friends

keep encouraging me to buy my own home before

it’s too late. I’m very comfortable with my rented

property and I really don’t want to spend a lot of

money buying a house. Am I making a financial

mistake by continuing to rent instead of buying?”

The biggest financial dream of most persons is to

own their own home. However, an increasing

number of people are opting out of home

ownership, even though they may be able to afford

to buy.

Is purchasing your own home the great financial

benefit that it’s always portrayed? Or could it be

more profitable to put your cash in other forms of

investments? There is no one answer that will suit

every person. Buying a home is a significant

investment of time and money, and you will need to

consider the pros and cons of renting versus buying,

in order to decide what’s best for you.

Advantages of buying

1. It’s all yours.

Owning your own place gives you increased

flexibility to do whatever you desire with your

property, without restrictions from a landlord.

2. Real estate can be a profitable investment

As the saying goes “Land can’t rotten.” Owning a

home can be a long term investment that provides

higher average returns than investing in money

market instruments or even the stock market.

3. Mortgage payments are fixed

If you take out a mortgage to pay for your house,

the payments are usually fixed over the lifetime of

the loan. This allows you to realistically budget

your annual cost. Also in respect of inflation, the

real value of your payments will decrease over the

years.

Your Money

Coach Cherryl Hanson Simpson

4. You can borrow against the equity in your

home

Your property can increase your net worth and give

you collateral to access financing for other projects.

Disadvantages of buying

1. It requires a substantial financial outlay.

Many people wipe out all their cash for the down

payment and are left with no emergency funds for

short term expenses.

2. The monthly costs can be higher.

Mortgage payments can be more than your monthly

rent. You should also factor in costs for property

taxes, maintenance, security and insurance in the

total cost of the home.

3. Missed payments can mean losing your

home.

Mortgage companies have very strict policies on

late payments. If you run into financial difficulties

your property could be foreclosed within a few

months.

4. Real estate can be an illiquid investment.

Selling your property can be a time consuming

process. If you need to get back cash from this

investment, it could take several months or even

years.

Advantages of Renting

1. It doesn’t require much initial expenditure

You don’t need a large down payment- usually only

one to two months’ rent is required as a security

deposit. You can also invest your lump sum in other

ways that can bring faster returns.

2. It’s usually cheaper to rent than to pay

mortgage

Many times the monthly rental is less than what you

would have to pay for mortgage. This is especially

so for established properties where the landlord may

have a lower mortgage cost, or finished paying

mortgage.

3. You’re not responsible for upkeep.

Repairs and maintenance are costs to the landlord.

Some landlords may ask you to fix and deduct from

your rent.

4. You can move at any time.

You don’t have to wait on the tedious process of

selling in order to move location. If the value of the

neighbourhood has declined, you also don’t have to

face the possibility of loss of value of your

investment.

Disadvantages of Renting

1. You’re probably paying someone else’s

mortgage.

If you continue to rent, your money is going to help

some one else own the property, and you’ll never

build up any equity.

2. Home security is low.

The possibility of rent increases or the landlord

asking you to leave can lead to insecurity about

your home, especially if you have a family to

consider.

3. You miss out on an investment that can bring

long term gains.

Real estate can provide financial security and the

possibility of retirement rental income in the future.

4. Property values can increase out of your

reach.

The longer you wait to purchase real estate, the

more expensive it will be to afford the down

payment and mortgage costs.

If you have decided if home ownership is right for

you, you’ll need to consider if you can really afford

it. Next week we’ll show you how to decide if

you’re financially capable of buying a home now.

Copyright ©Cherryl Hanson Simpson

Cherryl is a financial consultant and coach, and the founder of Financially S.M.A.R.T. Services, Jamaica’s number one source for practical, down-to-earth and independent answers for all questions relating to personal finance. Cherryl is currently writing her first book, The 3 Ms of Money.