Buy or rent a flat, what is the best option?
In the vast majority of cases, the economic factor that usually has the most weight when deciding between buying or renting a flat is the debt and payment capacity that we have ( economic effort rate that, for responsible credit, should not exceed 35% of our income ).
It is not just about calculating the mortgage payment. The purchase requires a good amount of liquid money (consolidated savings as a contribution) . For this reason, the decision between buying or renting a flat is, to a large extent, an economic decision that implies different scenarios and savings / investment strategies to be analyzed.
For the purchase, the total expenses of the operation as a result of the new Mortgage Law are only those of sale and purchase since those of the constitution of the mortgage are assumed by the bank. They vary according to the autonomous community but can be estimated, on average, around 10% of the amount financed. In other words, for every € 100,000 you would have to pay about € 10,000 in non-recoverable expenses. That is when the possibility of renting comes into the equation.
¿ Which is better to rent or buy? In this Sky Marketing article we show you the different possibilities so that you can decide whether to buy or rent a flat.
Advantages of renting an apartment
Live where you really want to. If you have the means, you can live in the place you like, even if you don’t have the solvency (you don’t have the necessary savings) to buy it. That is, you can live in an excellent home, with the comforts you are looking for, without having to make a large investment. This is spending the same monthly amount that you would pay with the mortgage payment.
Still the advantages of the rental are:
- It allows you to adapt your finances. By renting, you can better control your money and manage your budget more easily.
- You can change your mind . If, when living in the apartment, it is not to your liking, you can change your home without much problem. You have more freedom to change your residence for work or family reasons.
- Less paperwork. When renting a property, much less paperwork is required than when buying it. With a simple lease and the deposit will be enough.
- No tax. The tenant, upon acquiring the right to use the home for a specified period of time, will only pay the deposit. No type of tax will be at your expense
Property owners are responsible for paying the taxes corresponding to the homes they own each year .
- You don’t spend on maintenance. The major expenses for solving structural damage that occur in the home or something that stops working are borne by the property owner.
Disadvantages of renting an apartment
- You have an obligated relationship with the landlord. Aspects such as expenses for supplies and minor repairs are frequently negotiated.
- Forced mobility. Once the time of the signed contract and the mandatory extensions is over, if the owner decides to stop renting the house, whether you want to or not, you must leave the apartment and look for another.
- Rent price increases. The rental price is adjusted annually based on the CPI and is subject to volatility and possible speculation about the rental price.
- Owner’s permission required. You will need permission to paint or make any reform in the property. If you invest money in apartment improvements, it will not pay you back.
- The home will never be yours. Even if you have been living in the apartment for many years and paying rent, it will never be yours. Think that you are giving money to someone else.
Advantages of buying a flat
- Revaluation and capitalization of your investment. It is a good long-term investment. The market trend is up. If the apartment is second-hand and is well located, immediately after the reform, the house will have appreciated. There are more and more companies dedicated to the sale of old and renovated homes.
- Increase in equity . When you finish paying for your apartment, after 20 years -for example-, you can use it to finance your retirement or other important expenses. You will have the security of owning an asset to enjoy indefinitely.
- Variety of offers, diversity of locations. New housing developments are usually located in more remote areas and in urbanizations that offer facilities such as common areas, swimming pools. On the other hand, second-hand homes can have a central location, better services and better public transport.
- Adaptable to your liking . When acquiring a second-hand house, the reform gives you the possibility of adapting it to your taste and personal and / or family needs . You will be able to do a rehabilitation with efficient purposes, through the use of insulating and sustainable materials, which guarantees sustainability and energy efficiency. You can also expand or renovate the house when you consider it necessary.
- A hereditary asset. Having a hereditary real estate for which the children can dispose of it or sell it in the future.
Disadvantages of buying a flat
- The indebtedness and the ups and downs of the market. It requires having a large sum of money to invest. In case of non – payment of the mortgage payments, it would lead to problems with the bank, which can lead to the loss of the property. The increase in the benchmark indexes for mortgage loans has an impact on the rise in variable interest rates. It is estimated that around 30% of new mortgage borrowers are not clear about how this variability would affect them. It is believed that a third of the Spanish who have formalized a mortgage, in the last two years, could not face a rise in interest rates on their loans. This fact could be related to the current boom in fixed-rate mortgages.
- Expenses associated with the purchase and maintenance. In addition to the mortgage payments, the purchase generates a series of obligations that are neither recovered nor provide any tax advantage. This is the case of home insurance, various taxes, maintenance and community expenses.
- Remodeling costs. It is important to determine how much money you can invest. What you can save on buying a used floor may be outweighed by the amount of remodeling the property needs.
- Charges on the property. Knowing the legal status of the property is essential before buying a second-hand property. It is verified in the land registry.
- Risk of scams. The sale between individuals always carries this risk. It is wise to turn to expert advice, which we offer you at Sky Marketing, to avoid future problems.
Rent vs. Buy: which option to choose
With all these aspects mentioned, we must take stock of what is the most convenient: whether to rent or buy an apartment.
When faced with the decision to buy or rent, be inclined to think about adjusting to your possibilities and meeting your needs for your lifestyle.
A rental can be a good option if we are looking for a short-term home, but if what you are looking for is a home to live in, the best option is undoubtedly the purchase. Having your own home will make you have something of yours, which belongs to you. And if you get tired of it in the future, you can always sell it, it is a long-term investment. If your circumstances change you can always sell it, rent it or use it as a guarantee to face new challenges
Capitalize money with a property
Capitalizing on money will always be a good option. Think that with the purchase you are investing in a real estate. With the rent you are benefiting another individual.
In addition, buying a home is investing in a product that does not devalue which will make your initial capital revalue and increase its capital gain. This is due to several factors:
- The pace of demand for housing is greater than that of the construction of new houses, which makes the properties built have a higher value.
- Home prices typically increase 5-7% annually.
- The value of homes is revalued when there are periods of inflation.
In summary, it can be said that if a property is acquired today for an amount of money, it will surely be worth double in 10 years.
If you have questions both as a tenant and as a buyer, you can count on the peace of mind of having the support of the expert knowledge that we provide you at Deplace.
You may be interested in buying a new home, but have not yet made up your mind to do so. If what worries you is not knowing your economic capacity to face such a purchase, we can help you.
If you want to know what is the best long-term savings / investment strategy (mortgage), or you simply want to know which house you could buy with what you pay for rent and the consolidated savings you have, at Deplace we will do a feasibility study and We propose the best scenarios so that you can make the decision with all the information on the mortgage market.