Buy Or Rent?

At some point in your life you will be faced with the daunting decision of whether to buy or to rent. Finding a place to live is an important decision that can significantly impact your happiness and well-being. The choice primarily depends on your financial position along with personal goals and other preferences. When it comes to renting or buying there is no “right or wrong” answer, it relies on what is suitable for you and your circumstances.

Before making a rent or buy decision, consider these questions:

1. How long do you intend to stay?

2. What are the costs involved?

3. How much can I afford?

4. What are the benefits involved with renting versus buying?

These questions may seem simple, but they are important because the choice you make today will affect your tomorrow.

How Long Do You Intend To Stay?

The first thing to consider is how long you intend to live in the location being considered. If the intended stay is short term, it may make more financial sense to find a decent rental space than to purchase a home. For example, if your job sends you to another island to work for 3 years, it may be best to rent a living space rather than going through the expense of buying a home. However, if you plan to stay in the area for a longer period of time, buying may be a more suitable option.

What Are The Costs Involved?

COSTS AssociateD With Renting

• Upfront fees: First rent payment, last rent payment, and a security deposit;

• Monthly rent payments; and

• Possible utility bills such as electricity, cable, and phone bills. Sometimes, these are included in the monthly rent payments.

N.B.: It is also important to consider whether your rental space will be furnished with furniture or not. This can also add to your initial costs.

COSTS Associated With Buying

• Mortgage Payment: For most people, in order to purchase a home, they need financial assistance. If you acquire a mortgage, there will be a fixed monthly payment to your lending institution;

• Closing costs: This includes the down payment on the cost of the home, usually ranging from 5 to 20%, legal fees, the realtor's commission, government stamp tax, and VAT charges on the applicable services;

• Property taxes that are charged on the value of your home. Depending on the value of your home, you may qualify for an exemption;

• Homeowners and life insurance: These are mandatory to acquire a mortgage, and are based on the value of your home; and

• Ongoing condo or homeowner association fees, if applicable.

How Much Can I Afford

Well, the answer to this question depends on your financial capabilities. After comparing the fees of both renting and buying, those associated with buying are more complicated and costly. By looking at your financial position, i.e. savings, outstanding debts and disposable income, you can determine which choice will best fit with your goals. There is no magic number for affordability, but it is commonly suggested that your mortgage payment or rental fee be no more than 28% of your monthly income. For example, if your gross monthly income is $2500, then your payment should ideally be no more than $700. This will allow you flexibility to maintain expenses while saving and living comfortably.

What Are Some Benefits of Renting vs Buying?

So, do we have an answer on whether it is better to buy or rent? Unfortunately, we do not have a definitive answer. The decision can only be made on a case-by-case basis. Sit down with a financial advisor to find out which option will help you to GET MONEY SMART.