It can be a real dilemma when one is considering whether to own a property or to rent it. An honest and direct response to this subject is that there is neither a right or wrong answer, as this matter can be subjective depending on your circumstances and own personal preferences.
A common misconception that people normally have is that buying is always the better choice. Given that you can afford it, the property will be an asset that will eventually grow in value over a period of time. However, the costs that come with purchasing a property shouldn’t be neglected. A quick list down of what is required to be paid off when buying a house includes down payment, valuation fees, legal cost, stamp duty, mortgage reducing term insurance, property assessment tax, maintenance fees and maybe renovation costs.
Even though these may seem a lot to handle, it maybe worth purchasing if the buyer can bare the costs, because at the end of the day it can serve as a form of investment, and you’re entitled to complete ownership of the property. People who are renting however, could miss out on home equity if value of a property increased, although the upside to renting is that they avoid of forking out their money not having to experience the high upfront costs and recurring fees mentioned previously.
No matter which one of the two options you decide, both will still involve in substantial financial commitment. Financial planning and calculations are necessary beforehand, or you could face with a debt before you even know it.
Buying a house will of course conclude you to a much bigger commitment. In saying that, if you face insufficient savings for your own personal emergency funds after investing in a house due to all your cash being tied into your new home, you may experience living paycheck to paycheck to make ends meet. This is a risk that’s vital to consider and one to avoid if you know you’re risking not committing to your monthly mortgage.
Many claim that renters are on the losing end in the property market, filling their landlord’s pockets month to month, only not to own the property themselves. Yet, not all home purchases can end up in a good deal. A quick indication to know whether buying a house is a more economically wise choice than renting is by calculating the “Price to rent ratio”. By doing so, you’ll know the number of your rental fees that will take to cover the cost price of the property.
As an example, if a house costs RM300,000, whilst a property that you’re interested in renting is RM1,500/monthly, summing up to a RM18,00/year. The price to rent ratio would be 300,00/18,000= 16.66, indicating that it takes 17 years of rental fees to match the price of the house. In simple terms, if you intend to stay in that house for over 17 years, buying the house would be an ideal option.
Renting, however, would be sensible if you intend to temporarily stay in the property. It might not be worth your money if you plan to live for an only a short period of time. Thus, the duration of your intended stay is also to consider as a factor.
Those are just a few quick share of ideas on the topic of Buying vs Renting. As said earlier, this topic is subjective because at the end of the day everyone has their own personal needs and preferences. We all have different types of lifestyles, and our own personal circumstances are different, as this plays an important role in your decision making.
Article by: Farouq Zulkipli
