Rent or buy a home?
I'm from Sweden and I currently live in an apartment that I've bought years ago. But I've been having thoughts about maybe selling it in the future and get a rental instead just to be free of mortgage. Many people here thinks that it's a waste of money to just rent and that it's better to own a home, regardless of how much money it actually costs to buy a home. I live in a studio apartment right now, and would like to live in a two-bedroom home in the future. So if I want to buy a two-bedroom apartment that will cost somewhere in-between 250 000 - 450 000 USD depending on what area in Stockholm the apartment is located.
These are my numbers as of right now:
Mortgage: 814 000 SEK = 93 067 USD (1.29% interest)
Student loans: 424 000 SEK = 48 476 USD (0.16% interest)
Personal loan to my mum: 116 000 SEK = 13 262 USD (0% interest)
What are your thoughts about renting vs. buying a home?
There are so many factors that go into it that I don’t even know where to begin. A lot of times it depends on where you live. For example, some areas of the US it’s cheaper to rent than to buy whereas other parts of the country, it’s the opposite. You’ll have to do the math for where you want to live in Stockholm. Where I live, I’d have to pay a lot more per month to rent than I pay by owning.
Some say you shouldn’t view your house as an investment. That you can do better investing in equities when all is said and done as far as a return on your outlay. Also, I used to agree with those who said you’re wasting your money when renting but not any more. You have to live somewhere, right? If it’s more beneficial for you to rent based on all the factors, then rent.
Another factor is that mortgage interest rates are lower than they’ve ever been right now so that favors owning.
Sandra Valman said:
get a rental instead just to be free of mortgage.
That I don’t think is a good reason to rent instead of having a mortgage. A long term, low interest rate mortgage can be beneficial. Rents can go up while your mortgage will always remain the same. (At least in the US, not sure about Sweden.)
There are pros and cons to both. If you own, you’re not as flexible as to where you want to live or for how long. When you own, you can make modifications and improvements. The list goes on and on. Only you can decide what’s best for you after weighing all the factors and doing all the calculations.
This came up for me very recently when my rent went up. I started thinking about how much I was paying in rent vs what I could buy for the same monthly cost. After lots of research, I decided to buy a condo (I live in Chicago). I currently live in a 1100 SF 1 bedroom rental apartment. I just signed a purchase agreement to purchase a 1600SF 2 bedroom that will end up costing me $1000 less on a monthly basis all in, before any tax ramifications are counted. Yes, I'm losing the income on the down payment, but I'm not making a lot of income on that money now due to current low interest rates so I figure I'm not losing out very much. In addition, I got a 30yr fixed mortgage for 2.375%, which looked mighty good to me.
Everyone's situation is different, and as Superbone said, there are many factors that go into this type of decision.
I don't really understand the philosophy of "get a rental instead just to be free of mortgage". They're both similar financial obligations and both have their advantages and disadvantages. When I first moved into the rental I'm in now, my thought was I don't want to own because when something breaks or goes wrong, let management take care of fixing it. And I still think there's some validity to that - it just depends on what you're looking for.
This is a great calculator to compare renting vs buying. It's a little USA-centric with some of the tax defaults, but should work internationally.
For me, the independence that comes with owning, not having a landlord telling me what pets I can have, being able to paint the walls, landscape my backyard how I want, is simply priceless. It was barely a financial decision for me. I think, on paper, I could have done better for my net worth if I had rented, but that isn't what life is about.
Aquamarine Rhythm said:
For me, the independence that comes with owning, not having a landlord telling me what pets I can have, being able to paint the walls, landscape my backyard how I want, is simply priceless.
This was a huge factor in our decision to buy. Renting came with a constant feeling of limitations and confinements - "If we owned this place, I'd expand the kitchen and remodel the bathroom and..." the list went on and on. I couldn't find the perfect place to rent (there was always Something I wanted to change), but I could find a less than perfect place to buy and make it exactly what I wanted.
In our case, our mortgage is also less than what we'd have to pay in rent for a comparable place. Hopefully, buying the two bedroom you want (and can make your own) is cheaper than renting.
Yes me too re: security and control via owning. I can do whatever I want and no one can ask me to leave. That said, I get the impression long term renting is very common in Europe and there is none of the focus on buying a home like there is in Australia. I love the fact that my garden has grown over the last few years after I spent a bit of money on plants and things and I have the choice to use bright paint etc.
The other three key issues I'd be considering are:
`1. Total cost of ownership - with my house I pay council rates (? property taxes), all repair costs and because I'm in a block of units strata fees
2. Forced savings - even if the total cost is higher, a mortgage still eventually goes away whereas the rent will always be there forever and ever. Psychologically a mortgage seems big, but it does go down.
3. The tax implications - saving on personal tax is a major factor in long term wealth building. I'm not sure what housing benefits there are in Sweden.
It really depends a lot on the cost of renting vs. owning in your location, and on how much you value being able to improve your home (or on not feeling social pressure to improve your home!).
I am a happy renter, and I doubt I will ever own a home again. In my area, the cost is very similar, there are many good rental options available, and I would rather spend money on other things than home improvement projects. By renting, there's no pressure or temptation to do that.
When I get tired of my home or even one of my neighbors, I can quickly go find a new place to rent. There's no need to spend months getting a house ready to sell, and then the pressure to find the perfect one to buy (and align the closing dates!).
Most rentals here allow pets, and they don't mind if you do small projects around the house, so it works out well for me. If I'm buying a place, I am inclined to choose somewhere nicer than if I'm looking for a rental, so I spent more money each month and then invest even more, to improve it. If I'm renting, I just don't worry about those things, for whatever reason.
I was gonna link the NYTimes rent vs buy calculator, but I just noticed someone already did. That's helpful
There are a lot of non-math factors as well. I like the security of home ownership. I like that I can do whatever I want to my house or yard and make it my own. I like fixing my own stuff, although sometimes it gets annoying when it happens too often. But everyone is different. It's very personal. If you like calling the landlord to fix things, if you don't mind paying rent forever, if you live somewhere where the math sides says owning isn't worth it, etc, all might be very good reasons to rent.