Rent vs Own: Which Is Better For You?Sunday, April 18, 2021
In Jamaica, an unwritten tenet of the unofficial Jamaican Dream is owning your house. Maybe it's more a Jamaican cultural character than a dream per se. Still, the ability to own a home is viewed as acknowledgement that in your adult life you're finally doing something right, that you're “getting ahead”. Especially as that dream seems to slip further and further away from the so-called “average” Jamaican as their financial reality and the country's economic reality sets in.
Buying a house is a major financial decision that affects your emotional and financial well-being in ways that you may not have even considered. Sure, the tendency is to once and for all leave landlords behind — the thinking being: “Nobody can kick me out into the streets now.”
But is home ownership right for you? Don't allow cultural expectations to push you into any direction. Before you decide which option is better, arm yourself with all the facts.
Stability and security are at the forefront of the reasons for deciding to buy a house. If you're married or co-habitating and plan on starting a family, there may be no better reason, actually. Of course, if you're single and plan to remain so for the foreseeable future, this does not disqualify you from becoming a prospective homeowner, as well. Real estate, after all, is often a person's biggest investment and hence a big illiquid asset, making owning a big plus.
Also, a fixed-rate mortgage means that your monthly payment is predictable, it's guaranteed. As a renter, you're subjected to the whims and fancy of the landlord, and so you may face increases when the lease is up for renewal. If you live in an area that is rapidly becoming gentrified, let's say an area where the roads were recently widened and property values have begun to go up, there's a possibility your rent will be raised. Is that increase something your budget can afford?
There are expenses and responsibilities that come with home ownership that people often do not consider up front. An example being property tax costs that can increase over the period of your mortgage payments. It's all well and good to save money for the deposit on a home in an affluent neighbourhood, but can you afford the property taxes, which are not optional? Can you even afford the other hidden expenses you probably did not take into account, like cess payments that some apartment building strata will impose in the event that maintenance fees aren't enough to raise funds for special projects?
Still, when all is said and done a house can be a very sound financial decision that not only affects you but also your family and loved ones, helping you to anchor your dreams for generational wealth.
If you're one of those people who don't get the big deal about buying a house, and you're comfortable with renting, there's nothing wrong with you. This should not be taken as a sign of you lacking ambition. Perhaps, your job sees you travelling frequently, and so you simply don't have the time commitment that comes with owning a house. Home ownership is a big responsibility, and besides, maybe you'll change your mind as time passes. But the big argument against renting, that it's “throwing away money” every month, is not necessarily a factual one and maybe one of the biggest myths concerning the decision to rent.
Yes, it's true that you're not building equity by paying someone rent each month, but the fact is, not all home ownership costs go towards building equity. Renting or buying, we all need somewhere to live. This is accepted. When you rent, you pay a fixed rate each month and forget it. This allows you to concentrate on other aspects of your monthly budget without worrying that there will be some variance in your housing bill. If, therefore, say, a pipe bursts on the property wreaking major damage, that's your landlord's problem, not yours. If you're the homeowner, well, the unexpected repair and maintenance costs are on you.
Maintenance cost can be an even bigger issue if the property is an older one and in need of more repairs than a much newer one. Can you say these two words: Money pit? Owning a house like this may not necessarily build equity in the long run, either, if every month you're doling out wads of money on repairs that you did not take into account at first, because you were just so happy you'd got a sweet deal on a house you were finally able to afford. This is the quintessential example of the axiom: Buyer, beware.
As a renter, it behoves you to do the math. Based on your lifestyle, it is very possible that, for the time being, you're financially better off renting than owning. What you should think about doing, however, is investing the money you would have spent on owning your home into a retirement account; you never know how the wind will blow.
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