When is it advisable to keep renting rather than own a home?

For most people, a home is the largest investment they will ever make, the decision must therefore, be made carefully.  PHOTO/unspalsh.com.

What you need to know:

Before you decide to buy a home, you need to be realistic about your financial situation. If buying a home would take all your savings or stretch your monthly budget, it may make sense to keep renting for now.

Yes, everyone dreams about becoming a homeowner, but does it make sense when it is clearly beyond one’s financial reach? Life is more than owning a home, it is also about living a dignified life, meeting your obligations, and taking care of yourself and family. This obsession with owning a house is the source of many people’s misery. With this in mind, when is it advisable to rent, rather than buy or build a home? While at it, could you also tackle the issue of our obsession with land? Is it really a worthwhile investment?

There is a craze for home ownership and obsession with land purchase. First, a home is a basic need, which explains the strong feelings people have about it, both negative and positive. Perhaps what falls short is how they approach the size of the home they need relative to their financial health.

Though the choices one makes are social and emotive, they have financial consequences. The fact is that the world is full of people who make wrong choices about home ownership, leading to regret and misery.

For example, when you visit your rural countryside, you will see many incomplete rural home projects built by retirees pursuing their youth era dreams after retirement, but which were not completed because the money ran out. In such a case, the timing for the decision and the financial implication of the decision were not right.

 For most people, a home is the largest investment they will ever make, the decision must therefore go through a thorough process that will lead to a win-win situation especially after retirement.

Future investment

A decision to own a home requires wide consultation with professionals who have the skills and experience in the different areas of property before you arrive at a reasonable conclusion in terms of the size of the home and cost. Whether you want to buy a ready house or to build one, the decision will have financial consequences that need to have been understood before embarking on the journey.

On the issue of whether to rent or buy, compare the amount of rent you pay per month against the interest component of your mortgage.

Where your rent is equal to the interest you would pay per month, it is worth considering a mortgage. You will be forced to pay slightly more than the rent, but the additional payment is your capital towards acquiring the house. This capital component of the instalment increases over time as the interest reduces to your advantage. 

Land is an economic resource of production just like labour and other resources of production.  A decision to buy is best informed by the opportunity that piece of land in its specific location or nearby environment presents for future use. You should be able to develop this mental picture at the point of the purchase.

Stability

If you are have gained some level of stability in your life, and plan to put down roots where you are, then buying a home makes the most sense. But if you are unsure about the next few years, you may want to hold off on buying a home. For example, if you have just started out on a job with a two-year contract, it might be a good idea to rent so you have time to figure out whether you have the finances you need to buy a home.

  Homeownership also give you stability since you will not be at the mercy of a landlord who may decide to sell the home any time. You have the freedom to decide how long you want to stay in the home, and ultimately if or when you want to sell.

Assess your finances

Before you decide to buy a home, you need to be realistic about your financial situation. Once you estimate the costs of renting versus buying, be honest about whether you can afford other upfront costs such as a down payment, repairs, moving costs and buying new furniture. If buying a home would take all your savings or stretch your monthly budget, it may make sense to keep renting for now.

You should only consider buying a home only when you are able to put at least 50 percent  of the property price from your own pocket and also you have double that amount as other financial assets.  While collecting that much money might take time, this ensures he is not unnecessarily saddled with debt.

Another approach you can take is to not buy your dream home as your first home. You should settle for something that fits in your budget and then in a few years, when you have enough savings,  you can upgrade to a new house.

Renting frees up your money

Renting doesn’t have to be something you just tolerate before buying a home. Contrary to popular opinion, it isn’t a “waste of money” either. Having a roof over your head costs money whether you rent or buy. Especially in the beginning, there are a lot more costs to home ownership than there are for renting. This includes the down payment, property taxes, strata fees, utilities, maintenance costs, and of course, mortgage payments.

 By renting instead, you free up more money to use for other productive things like education, business, investments, and getting out of debt. This can bring you just as much or more value than buying a home, even into retirement.