
When looking for a property, one of the most frequent questions we ask ourselves is “Which is more feasible to rent or buy a house?” On some occasions it is normal to hear that renting a house is like wasting money and throwing it away. However, as Forbes magazine mentions, this is not always entirely true, compared to paying rent, tenants receive the right to inhabit the property. In addition, we must consider that when buying a house on credit we will be paying interest, insurance and taxes apart from the value of the house, so the decision is not so easy or clear to make.
Before making such an important decision, certain factors must be taken into account that will help us to choose the best option and there are no problems in the medium or long term. Rent price ratio: It is a strategy to calculate whether or not it is convenient to buy or rent a property and this formula for rent price ratio will help us.
This formula is made by dividing the median property value by the median annual rental value. In summary, working as follows, and that is that the lower the number, the better it will be to buy and if it is higher, the rent will be the option. According to data extracted from Smartasset (intelligence) in 2019, the cities with the highest number of 250,000 inhabitants with the highest results and where it is not convenient to buy are San Francisco, Oakland, Honolulu, Los Angeles and New York and with the lowest results are and if it is viable to buy are Detroit in Michigan, Cleveland in Ohio and Memphis in Tennesee.
2-Estimated time to live in that property: At this point the “five-year rule” is used and this is the number of years that a person should take into account to live in a property before selling it so as not to lose the money. With start-up and closing costs, maintenance, taxes, and interest paid through the first few years of the mortgage payment, the home’s principal or real value is paid for. As a rule of thumb, if you will be staying in that property for more than five years, a small surplus after all expenses would be better and buying is more financially feasible than renting.
3-Buying an investment property: To take into consideration the purchase of a house as a good investment, it must generate money.
The reality is that the property is going to make money if you rent it out, but first of all you have to cancel it. Many people find it more convenient to have their money invested in something “Solid” rather than just seeing a number on their bank account. This is a clear example of unstable economies, with histories of high inflation in which the loss of savings in bank accounts has been reduced as a preventive measure against economic crises. Also, it is likely that in the long run, by the time you pay off your home, it will be higher than what you paid for it. However, another type of investment could be more feasible, for the same reason that it is more difficult to assume how the real estate market will be when it finishes canceling and it is most likely that its price will go up but without knowing how much.
4- Mortgage interest: It can vary between 2.38% and 8.75% of the principal value, depending on the lender, the credit score, the type of loan and the initial payment. With a 30-year mortgage, you will pay much more than a 15-year one, since you will be paying this interest for about 15 more years, but the monthly payment will be less.
5- Credit score: The same, it will be favored by a mortgage than by paying rent. In addition, sometimes the rent is not taken into consideration to add the credit score and a credit report service must be agreed to notify the credit bureaus of the payments and they are taken into account for the score.
6- Flexibility vs stability:
In the case of renting: The person is free to move when they prefer without major consequences, but the landlord has the power to ask them to leave. The amount may have variations if the locator increases the rent. There will be restrictions to carry out remodeling and it will not be possible to recover that investment, since some arrangement has been agreed with the owner.
In the case of buying: You cannot be removed from your property, but if you sell your house you will have to spend a minimum of five years there, and it is likely that you will lose money. A fixed-term mortgage will not raise the monthly payments. You can carry out any remodeling without any problem.
7- The hidden costs: In several cases the monthly mortgage payment is less than the rent. But you must take into account the additional expenses that will be added when you own it, although they will not always be monthly.
The expenses consist of property insurance, mortgage insurance (if the deposit was less than 20% of the value of the property), house inspections, real estate agent commission