Whether you’re looking to rent a home or buy one, you must base your decisions on your needs. Of course, with property ownership, you can enjoy the benefits of capital appreciation over time. But, conversely, when it comes to renting a home, you have the flexibility of using a property as and when required.
Going by your financial position, you must opt to either buy a home or rent one.
Scroll down to know about the different factors to consider before deciding whether renting or buying is your best bet.
Consider annual payments
Before buying a home, the average person considers all the related aspects. While purchasing a home is an emotional decision for some persons, others prefer buying property over renting for the convenience benefits.
However, the property maintenance experts opine being financially prudent. They recommended buying a home if that is more profitable for you. On the other hand, you might want to consider renting a house if doing so makes more economic sense.
An important aspect that requires consideration when deciding between buying or renting a home is to compare the annual expenses.
In the case of home purchases, you have to pay a mortgage. A mortgage has two components: interest and principal. Because the principal is part of your savings, you should not include this component when calculating your expenses.
A prominent property management company in Delhi NCR will suggest using the interest component for calculating your expenses. This is because interest comes under your expenses. For example, your costs for buying a home include insurance, maintenance costs, property taxes, and interest (after subtracting the tax shield).
As far as your expenses for renting a home go, your calculations are relatively simple. First, you have to pay a deposit to your landlord. Deposit is not an expense but an interest-free loan, for you get the money back after the stipulated rent duration.
Other than that, you have to pay monthly rent. Here, you may want to incorporate the opportunity cost of your down payment if you’re buying a home. As such, you would earn income on your down payment money if you were not purchasing a home. So, you must deduct this amount from your monthly rent charges.
Thus, you have to compare your annual expenses of renting a home or buying one beforehand to make an informed choice.
Future annual costs
Buying or renting a home are not short-term decisions. Also, you have to be committed to your choices for many years. So, comparing annual figures for the current year is not sufficient. Instead, it would be best to study your future expenses and cash flow to get an accurate picture of your costs.
Now, the story gets complicated because you cannot judge your property capital appreciation over the years. Yes, supposedly, you alter your capital appreciation by even a small percentage. But, the net present value of your property can change by a considerable amount.
Predicting future property prices is not easy too. So, the property managers tell you to be wary of your future assumptions when calculating your future property expenses for a precise representation.
Risk for appetite
When concerned with your rent vs. buy decisions, your risk appetite also matters. If you have a risk appetite, you may think of taking a mortgage. With a mortgage, your risk increases because of the interest that you’ve to cough up. In addition, your net worth can change significantly if you’ve taken a mortgage due to market fluctuations. The reason being, a mortgage is a highly leveraged bet.
The rental property management professionals will recommend renting a home on the flip side if you’re not much of a risk-taker. You can always change homes and neighborhoods if rent rates rise in a specific locality.
Constancy Vs. Flexibility
While owning a home provides stability, renting a house offers flexibility benefits. As a homeowner, you do not have to move homes frequently. And if you’re looking to experiment with different apartment sizes and localities, renting seems a natural choice.
In all, given your requirements, you should decide whether to buy or rent a home.
About LuXia LLP – A Property Management Company
At LuXia, we manage properties of landowners who reside elsewhere. Approach us to know about your various options for renting a home. We are well-versed with the real estate market and can offer houses on rent at competitive rates. Be assured that we will provide you with the best options as per your budget and preferences.
Alternatively, if you’re a property owner looking for top-ranking property management services, you can contact us to know more about how we can help you get the best deals.