There is a conventional wisdom that renting a home is an option taken by people who cannot afford to buy. And I thought so too, until I met a number of very successful property investors and discovered that despite having net worths of £10 million plus each, not a single one of them owns their home. And of course that discovery forced the question: Is it better to rent or buy? Is the conventional wisdom wrong?
Analysis: Buying Versus Renting
Why is buying a house such an attractive prospect to so many?
It’s ingrained into society: your home is your castle, a place to call your own etc.
And yet on the other hand, it’s a purchase that almost always lands you in considerable debt, takes years to save for and then, often, the rest of your life to pay off. Plus, you’ll be personally liable for any repairs, which of course, you’ll have to pay for after tax, with your own salary.
Renting on the other hand is much easier. No deposit. No mortgage. Short term commitment. No repairs ever. It’s also easier to up-sticks and leave for any reason.
There’s just the small problem of having to pay your landlord each and every single month that you live there. But for most, that’s going to be no different that paying your mortgage. And in some cases, the rent can actually be less per month.
Buying Versus Renting: Running The Numbers
Let’s suppose you have saved up £50,000 for a deposit on a £200,000 house. (First of all, bloody well done! It’s not an easy thing to do.) So one thing is for certain – you are going to buy a £200,000 property.
If you buy one to live in, you’ll have “a place to call your own” but it’s going to cost you. You are liable for any repairs. You are also liable for the mortgage. And this sort of setup ties many into jobs they don’t like for decades, because that mortgage needs paying.
But what if you spend the same £200,000 on a buy-to-let investment property? This could yield you anything from £500-£1800 per month in rent, which, if you play your cards right can pay the rent on your home and leave you with some additionally cash flow.
You’re still liable for repairs, but you pay before tax rather than after tax. And you still get the capital appreciation that you would have got on the house you lived in.
So IS it better to rent or buy?
So holy moly! It CAN be better to rent your home than to buy it, but only if you’re going to invest the money you would have spent on buying your home into either stocks and shares (if you know what you’re doing), or an investment property. Just goes to show, it pays to question conventional wisdom sometimes.