Renting an Apartment Is a Better Option than Buying a Home
There is a common thought that buying real estate is better than renting a house. Is that a fair assertion or is this an opinion being cultivated in human minds in order to help real estate and insurance agencies blossoming? Is renting a waste of renter’s money? Is ownership an excellent idea of building wealth? Let’s consider the statement taking into account a few expense items connected with renting and buying in order to compare these two alternatives.
II. Buying a Home: How Much?
A. How to Buy?
First of all, to buy an apartment or a house one should have some savings in the bank or another initial capital to be able to buy expensive property. Usually buying or renting an apartment is an issue for the young people, challenging to start an independent life. As usual, young people don’t have much funds to be able to buy a house, therefore, they have to apply to a bank to obtain a loan. Besides, one has to bear in mind that when buying a home it is necessary to make a down payment. Loan financing is also available for down payment. It seems appropriate to mention: “Realtor to First Time Homebuyer: First you folks tell me what you can afford, then we’ll have a good laugh and go on from there.” (Realestatejokes, 2008).
B. Mortgage Payment Calculation
According to the recent research of BBC (2011), the most common fixed interest rate is about 6%, the average salary in European countries is about £1700 per month. The value of an apartment in Europe is about £230,000; the average rent fee is about £700 per month (Getrichslowly, 2007). Thus, the average mortgage payment makes up about £1400; thirty years period of loan was taken. It is remarkable that the total amount of interest paid for the whole loan period totals 80% of the loan body by the time one pays off the debt. It is a sum equivalent to another small flat to buy (Getrichslowly, 2007). There an anecdote came incidentally into my mind: “The dream of the older generation was to pay off a mortgage. The dream of today's young families is to get one." (Realestatejokes, 2008).
C. Additional Expenses of a Homeowner
In addition, as a homeowner, one has to pay property taxes, utilities, and insurance.
As Bargaineering (2011) researched, “… you’ll pay property taxes, homeowners association dues, condominium fees, and any number of other fees associated to the area your home is in – none of which go towards the equity in your home.” For example, the total payment is up to £3,000 in property taxes per year, in addition homeowner has to pay about £30 per month for HOA fees, and approximately £500 per year for a parks and recreation fee. The total sum is £3860 per year in addition to other costs. It is evident that home maintenance and different fees form a sizable sum, while you do not incur these costs when renting.
It means that obtaining real estate may turn to thirty years starvation for the one who decided to become a happy owner of an apartment, as well as for his or her family, unless one is lucky to find a well-paid job or succeeds in developing his or her own business. Besides, paying off a loan for a long period may turn to an unbearable burden. Do you ever ask yourself if you are ready to live under constant pressure caused circumstances when you are not able to make the next mortgage payment? When considering a possibility to buy a home, did you properly analyze all the pros and cons? Have you ever thought “what if…”? For instance, what if you lose your well-paid stable job due to the global crisis? What if you would become disabled by chance? Think of it properly as thirty years is a long period and life is quickly changing and unpredictable.
III. Renting Apartment as an Alternative
A. Renter’s Expenses Comparing to Homeowner’s Expenses
On the contrary, when renting an apartment, one may feel more comfortable being free of all the expenses mentioned above. The only thing one has to think of is renting deposit and renter’s insurance which is one-third of homeowner’s insurance payment. Paying £700 for renting an apartment leaves you £1000 for your needs, which seems much better in comparison to buying a flat when so much less funds are left after paying mortgage. Don’t forget that owning real estate also means carrying out periodical renovations and maintenance, which cost a lot as well (Priced Out Forever, n.d.). As the story goes, “My realtor sold me a two story house - one story before the sale, another after.” (Realestatejokes, 2008). Owning a home is a huge responsibility and one should think twice before taking this obligation. Remember, “The trouble with owning a home is that no matter where you sit, you're looking at something you should be doing.” (Realestatejokes, 2008).
B. Changing Location
When renting an apartment one is not bothered with spending additional funds for repair. If one decided to rent a flat instead of buying a home, he or she is not tied to a definite place and can enjoy the flexibility and freedom. Imagine one is offered a job in another state or a country. Moving to another country when owning real estate means selling it what requires additional funds and time. One can change his or her location without any discomfort when renting a flat: it is easy to rent another flat on arriving to another country. This is an actual issue taking into account recent development of globalization, interaction of all nations and migration.
C. Is Investing Into Real Estate as Profitable as It Seems?
One more argument for renting an apartment instead of buying is that home prices do not go up all the time, so buying a home does not always mean making a good investment. Bargaineering (2011) experts stated that “The problem with that theory is the fact that while you can invest in the long term, reality forces you to live in the short term and in the short term the market can go down.” It means that considering home purchase as a defensible investment in the short-term period can be argued. Therefore, buying a home does not suit for a saving plan and can’t be considered as an advantage over renting a home.
IV. Illusion of a Homeowner Status
Bitter truth is that being a homeowner is a kind of illusion. “Wasting money” on renting means paying rent every month. If you pay your mortgage, you do the same but the payment is far larger. Sure, there is a certain stratum of people who can afford to be homeowners without paying a mortgage for a lifetime. These spoilt children of fortune total not more than 5%-10% of all the population. But let us talk about a middle class which represents the ultimate majority of the population and commands the bank services frequently. On close examination, “your ownership” is not actually yours till you make your last payment, very likely, being grey-haired old man or woman.
V. Making Final Decision
A. Comparing Disadvantages of Renting and Buying a Home
Certainly, renting a home doesn’t give you superior feeling of being a homeowner; you will have to look for another housing when your apartment owner decides to sell it, you are to “waste” money paying rent for the lifetime, and may experience conflicts with careless homeowners. But if we compare all these minor disadvantages of renting to disadvantages caused by home ownership, you will finally reject the pointless idea of buying a home. Necessity to provide down payment, huge mortgage payoff, risk to be “thrown away” if you are not able to pay your bill, permanent psychological pressure, absence of flexibility, necessity to repair your house, maintenance expenses, insurance of your would-be property will preoccupy your mind for the lifetime.
It is evident that the disadvantages of buying a home far outweigh the disadvantages of renting similar housing, so, preserve your sanity and rent forever; don’t listen to what is dictated to you by any persons concerned.
B. Final Conclusion
As a conclusion, the strong belief in “buying not renting” is baseless since a lot of facts stand for renting. The statement contradicts existing finance advice concept in spite of the fact that it is logically proved. In general, a decision of buying or renting an apartment depends on one’s nature, habits and psychological type. But the arguments considered in this research weigh heavily against buying a home.
Buy If You Must. Why Must You Buy? (n.d.). Priced Out Forever. Retrieved from: http://pricedoutforever.com/more-rent-vs-purch.html
Daily Financial Markets Analysis & Forecasting online publication. Retrieved from: http://www.getrichslowly.org/blog/2007/07/16/renting-vs-buying-the-realities-of-home-buying/
Just what is average? (2008). BBC. Retrieved from: http://news.bbc.co.uk/2/hi/uk_news/magazine/7581120.stm
Real Estate Jokes Humor and Satire. (2008). Retrieved from: http://realestatejokes.nationalrealtorsdirectory.com/
Roth, J.D.(2007, July 16). Renting vs. Buying: The Realities of Home-Ownership. [Web log comment]. Retrieved from: http://www.getrichslowly.org/blog/2007/07/16/renting-vs-buying-the-realities-of-home-buying/
UK Average Fixed Rate Mortgage Interest Rate Hits 6%. (2009).
Wang, J.(2011). Rent Forever, Don’t Buy A Home. Retrieved from: http://www.bargaineering.com/articles/rent-forever-dont-buy-a-home.html