Renting VS Buying
Hi everyone hope you’ve had a great week so far. In today’s newsletter, I will be outlining a few pointers comparing buying a property vs renting a property alongside my opinions on the subject.
In the last decade, there has been a large focus on the affordability of real estate for millennials and Generation-Z. Amidst the rise of social media, property ownership has been marketed as something adjacent to the ‘birth right’ of twenty-somethings.
In my opinion, it just isn’t.
As a woman of Nigerian heritage, it is rare for young women to move out of their parents’ homes to make property purchases and live alone, and historically, moving out was dependent on marriage, partially because of the lack of available mortgages for both men and women (most times people purchase homes in cash) which lowers the incentive to buy for most young Nigerian women (and men). People usually buy homes when they get married or have their first child
This is such a contrast to the culture in the UK, where young people- both men and women move out of their ‘nests’ to live independently once it is feasible to do so.
There are motivations to ‘get on the ladder’ and to get a mortgage ASAP.
The debate on renting vs buying is a loaded one because it truly depends on one’s financial situation, interests in global mobility and marital status amongst others.
In my opinion, these are the factors to consider when comparing the benefits of renting vs buying.
What kind of property do you want to live in?
The range of properties one can live in is widened when one is a tenant, because the landlord who can afford to buy more luxurious properties in prime locations is leasing the property as a product to the tenant.
Statistics show that first-time-buyers only live in their first homes for two to five years.
This is because of various factors- the main factor being that the affordability of the buyer increases as their financial situation changes over time. First homes are never forever homes, so can choose to wait until their situation changes and they can afford to purchase building much closer to their taste.
I think the choice to buy a home should take the quality of accommodation and the location one wants to reside in into consideration.
Personally, I’d rather live in a lovely apartment with a gym and swimming pool than own a condo in no-mans land.
Are you truly interested in real-estate investments?
Owning real estate is very hard work. It doesn’t end at the release of keys. There are various issues such as maintenance, planning permission etc, and owning a property is just another thing to worry about if you aren’t that keen on owning or managing real estate.
Gone are the days of solely brick and mortar investments, it is now possible to invest in real-estate without buying a physical property- you can buy within the ‘metaverse’ or even look into investing into real-estate stocks or property development projects.
Nobody should get themself into thousands of pounds in debt just because of the rat-race to own a property ‘young’.
It is a very expensive trend and can become a huge liability very quickly.
Will it be an asset or a liability to you?
Asset vs liability is a tricky argument, and it truly depends on your school of thought.
In my opinion , a large proportion of real estate purchases are liabilities until fully paid off- especially when expensive and not income generating .
However, if a property is generating cash flow for the owner, equity can be released, there are tenants within the residential property, or it is a rental property it is almost always an asset.
Some properties purchased on government schemes can’t be utilised as equity until government loans are paid off in full and tenants are not allowed to reside within such residences unless the terms of the mortgage are changed- Property investments can become a trap very quickly .
Let me give you a case study
If Adam buys a £600k new build property at a high interest rate of 4%, his monthly repayments will be £2200 a month for the foreseeable future. If he rented the property, he could pay £1600 instead of £2200 and invest the £600 change into some stocks/ETFs. Alternatively, he could invest in a start-up after accumulating the difference for some years. Some might say that Adam renting will be ‘throwing money down the drain’ , but there is no guarantee that Adam will be alive at the end of his mortgage term, or that the new build will appreciate by a significant figure at the end of the mortgage term. What if Adam can afford his rent and wants to live life ‘risk-free’? What if he is into other asset classes?
Some of the companies that Adam invests in with the change he obtains from remaining a tenant could IPO and become his cash-cow. Adam could also purchase a rental property worth £200k and pay it off within 10 years.
If one moves to another country for further study or any other reason, they are still responsible for the mortgage.
One will need to change the type of mortgage from residential to buy-to-let (fees incurred) and there is no guarantee that they will have responsible tenants.
Living overseas and dealing with a debt obligation could suddenly become a big stressor in your life.
So, the big question is – Is it an asset or a liability to you.
Overall, I believe that renting is a great option if one wants to live in an amazing property with amenities and is not ready to wait for a decade to accumulate the high deposit required to buy a luxury high rise flat, and buying is great for those of us who love dipping our hands into risk and trying our luck with building real-estate equity.
It’s okay for one to wait until they settle down with a partner, as a two-person purchase is always better than one, and real-estate is not always the ‘cash-cow’ people frame it to be. It is a medium to high risk, low reward investment in the early days.
There are No recommendations this week, as I have been too busy to listen to anything ‘brand new'
Quote of the week -
“Rich people acquire assets. The poor and middle class acquire liabilities that they think are assets.”
Make of that what you will ;)
See you next week!