When it comes to property, the never-ending debate for most is whether renting or buying real estate is the best long-term solution. Although the smart money would say it’s the latter, there are other considering factors to think about first.
Sure, buying means investing in an asset, which will most likely appreciate over time. It’s yours, and you can do whatever’s necessary to it to suit your personal taste and lifestyle. Renting would dictate living under someone else’s roof, subjected to rules and conditions set by the owner, such as a no pet rule.
But it clearly stretches beyond those two factors. There also opportunity costs to factor in as well as logistics and life/lifestyle considerations. Both provide room for debate and pros and cons that effect home seekers from a personal as well as financial point of view. And it looks like many of you are thinking the same…
For the first half of 2021 there were a total of 635 million property searches on Mudah.my. The split between rental and purchase represented a split of 43.14% and 56.86% respectively. That translated to 273.9 million users looking for a place to rent with 361.1 million in search of a property to buy.
A quick look at search parameters identified the main areas of Selangor, KL, Penang, and Johor continue to be the most searched by consumers in both fields. With these areas being major business and trade hubs it is certainly not surprising despite the changing economic landscape.
It goes without saying that with the property market softening due to the economic uncertainty brought upon by the pandemic, it has changed the property landscape. Faced with financial restraints some owners are liquidating their properties at enticing prices. This has also caused a surge of interest amongst cash rich buyers. As such the renting vs buying debate now is more contentious as ever and that’s because it always involves money.
Finances is always the key factor in investing in such a huge asset with the purchase price being the one of the many hurdles to overcome. There is also the down payment, legal fees, and duties to set aside. Once you’re handed the keys – renovation costs, maintenance, and other areas such as utilities and furnishing come into play.
All of this racks up to a sizeable figure but also let’s not forget about the mortgage payments, which you are also paying interest on. Stretched over a course of 15-20 years, it does amount to a fare chunk of change, which you could have used investing in other areas.
That’s not saying that investing in a house will not deliver great returns. In most cases real estate will appreciate in value but is that value tantamount to a mortgage repayment of say 25 years?
Renting As An Option
Rental is in essence a no-frills approach in finding a home. You find a suitable home, negotiate the terms/conditions and monthly fee, hand over the deposit and move in. Other than the rent and utilities, everything else is pretty much handled by the owner. You just need to pay the monthly fee and ensure you do not violate the terms of the tenancy.
That said, renting does come with a lot of limitations. It’s basically a roof over your head and you can’t really do anything to the property. Renting also means handing over a fair amount of cash each month to the homeowner, in which they would use to offset their mortgage repayments for the unit. And of course there is always the risk of the owner not opting to renew the tenancy.
Renting also means benefiting from having a home that is more suited to your needs. Oftentimes this includes finding a place nearby to work, which eliminates the commute time or a neighbourhood or township close to schools or universities.
Some also search for homes that come with necessary features and amenities related to specific interests such as a swimming pool and gym for condo dwellers. Still there are two main questions to ask before deciding if renting or purchasing is the right path for you.
Can You Afford It And Where Will You Be In Ten Years?
When it comes to big assets, cost is always the deciding factor. So if you can afford a place of your own and if you find one that does not break the bank, it should translate to a nice long-term investment for both yourself and the family.
As a simple guide, buying a 500k new home would roughly result in a monthly instalment of about RM1800-RM2000 based on a 30-year-loan based on current interest rates. Also don’t forget to factor in the 10% down payment (RM50,000). Renting a similar home, will set you back between RM1300-RM1600 per month plus a deposit of about RM3500.
If you have the required funds great, but also do consider the fact that where you are now may not be where you will be in the future. If you’re working out of town or planning to move to another state or country for professional or personal reasons, the cost of uprooting yourself will be a factor. Putting a house on the market, agent fees, the time needed to sell plus taxes to settle will cost money and time.
Renting negates this issue, because all you need to do is to provide the required notice, pay up the rent and utilities in full and upon getting back your deposit, pack your bags and move out. And then of course there is also the changing economic landscape, which has forced many to evaluate their finances and, in some cases, downsize on their commitments. Are you able to keep up with the monthly mortgage and upkeep of the property or properties you presently own in the near future?
At the end of the day there is no right or wrong answer to this age-old debate because it is up to individual finances, preferences as well as needs. Regardless of if you choose to rent or buy, the main thing to do is to always think long term and not just from a monetary but also a personal point of view. That ultimately will translate to a smarter way of making full use of your money.