Buying or renting – what exactly should you consider to save money?

Buying property is probably the biggest, most important financial decision you’ll ever be compelled to make.

Should you be buying property right now and chain yourself to a 30-year mortgage or should you stick to renting? For a very long time, people were convinced that owning a property is part of the meaning of life; and that growing was all about getting a job, buying a house, getting married and having kids. Most of these principles still stand, however increasingly more people are no longer interested in property ownership. Why? Well, because it may not seem like the smartest financial move, at least not now when the economy has still not fully recovered.

The housing crisis has made potential buyers run away from ownership and stick to renting. For many, owning a home no longer ensures financial stability. However, things are not that bad. It’s all about assessing your situation first and settling on whether or not you can actually afford to buy, or if you’re better off in a rental. If you have a stable job and some cash saved up, then yes, you should buy. If not, you might want to stay away from property ownership to save cash. Here are some guidelines to help you make an informed decision.

A home shouldn’t be seen as your most precious type of investment

A lot of people choose to buy a property because they look at it as an investment. Then many end up overestimating their return on this type of investment. Homes can be appreciating assets, but it’s not always the case. Specialists in real estate argue that the housing market today doesn’t have long term returns. In fact, it can barely outpace the cost of living. From a historical point of view, real estate is not the best supplier of capital gains because it mainly provides housing services.

Even though a single property can keep you safe from the rising costs of inflation, people should know that a diversified bond and stock portfolio is a much better form of investment. Then again, the portfolio of an average American is made up of at least one property. Nobody is willing to put 80% of their portfolio in a stock or bond just to steer clear of inflation, so why would you do that with your home?

Renting or buying? Make a decision

Even though investing in property means that your best type of investment is your home, at the end of the day it still belongs to you. In spite of the fact that it can hardly outpace inflation, you are the owner so it must be worth something. Renting doesn’t bring you any profit as you own nothing. Many people would rather buy a house because eventually they’ll be able to pay it off, and it will belong to them. Renting property for the rest of your life leaves you with nothing by the time you reach retirement.

Running away from buying basically doesn’t allow you to understand how it feels like to own an asset.

Have a closer look at your total net worth

The majority of rent vs buy calculators only tell you the amount of cash you can save after assessing your home’s general value; then they consider the interest, down payment and monthly payments. However, these calculators also include opportunity costs, which matters the most. Taking into consideration opportunity and recurring costs, it will inform you how much cash is required to help you save in the long term by buying property and not renting.

Tips for helping you save money for a home down payment

Investing in property can feature a wealth of benefits; but for many people the whole process is just intimidating. To get started, you need a certain amount for a down payment. Then you might need more for monthly expenses and mortgage. However, leaving aside all that, you need to make ends meet – you can’t afford to be financially insecure. This is why it matters a lot to have a net worth.

Whatever decision you make – whether or not you can afford to buy a house or not – just remember that it’s best to rent and live comfortably than end up house poor. It’s not worth living in stress and having nothing after you’ve paid the mortgage. What’s the point in living in a nice home if you can’t afford to go out every now and then, pay bills on time or travel?

Apart from money factors, it is important to think about long-term goals. If you think in 5 years you’ll end up wanting to sell, then it’s probably best to stick to renting. Who knows, maybe in a year you’ll have to relocate to another city, or your current life goals can change. You just never know what life has planned for you.

By Davis Miller and!