Opinion
Is buying a home really better than renting?
Paridhi Jain
Money contributor“Should I buy a home?” is the question I’ve had a few people ask me recently. Different circumstances, different personal situations, but same concerns and doubts.
This might surprise you but the answer isn’t always “yes”, even if you have the money.
Why do people buy a home “as an investment” if it isn’t a “good investment”?Credit: Simon Letch
There are situations where you might be better off renting where you live, and investing elsewhere.
Here are some questions to ask yourself to help give you some clarity:
Are you looking for a home or an investment?
I commonly see people conflating the two – they say they’re buying a home “because it’ll be a good investment”. There are a lot of poorly understood misconceptions that feed into this – “rent money is dead money”, “why pay for someone else’s mortgage when you can pay your own”, and “property always goes up/can never fail/is always a safe investment”.
In a way, you’re trying to get two birds with one stone. But that’s a bit of a misnomer.
Many people I talk to “lose money” in property because they buy before they’re ready to make the long-term commitment of homeownership.
When you’re buying a home, the criterion is your personal lifestyle. When you’re looking for an investment, the criterion is what will give you a good financial return. Those two criteria are often going to produce very different outcomes. The property that will give you the best return might not even be in the same city or state that you want to live in.
The assumption is that “it’s still better than renting, though”. But is it, actually? Did you run the numbers, or are you just assuming? Once you factor in all the added costs of home ownership, plus the fact that people often spend more on a home (due to the emotional attachment and lifestyle preferences), will that property produce a better return, compared with investing in an asset that was bought purely for investment purposes? Often, no.
So, why do people buy a home “as an investment” if it isn’t a “good investment”? Often because they don’t know what else to do. They don’t have the skills and confidence required to invest that money elsewhere, and putting it in a home feels safer, easier and more familiar. It definitely feels like a better option than renting and having the money sit in a savings account.
I’m not saying don’t buy a home – I’m saying that buying a home, simply because you’re hoping it’ll end up being a good investment, isn’t a great reason to sign up for all the added financial and lifestyle costs of home ownership. You might be better off taking the time to learn how to invest, instead of hoping your home will turn into a good investment one day.
Property is an expensive asset to get in and out of – there are a lot of added costs to buy, and to sell.Credit: Peter Rae
What’s your long-term vision?
Why do you actually want to buy a home now? Is it just because you have the money, you feel some societal pressure, and you’re scared you’ll be priced out of the market if you don’t? Or is it because you are genuinely excited and ready to call a place home, long-term?
Many people I talk to “lose money” in property because they buy before they’re ready to make the long-term commitment of home ownership. Within a few years, the home they’ve bought is no longer a good fit for their lifestyle needs – they want to change careers, family plans have changed, they want to move overseas, etc – so they decide to sell, and buy elsewhere.
However, property is an expensive asset to get in and out of – there are a lot of added costs to buying, and to selling. Hopping around can cost you tens of thousands of dollars – leaving you no further ahead financially than when you started. Meanwhile, that money could have been invested elsewhere for stable, long-term growth, while renting provided the flexibility to accommodate your changing lifestyle needs.
Do you value home ownership, lifestyle, more?
If you value home ownership more, you’re likely to be more willing to sacrifice lifestyle to achieve your home ownership goals. You’ll put up with a longer commute, or live in a location you may not love – because you’re willing to make that sacrifice, for home ownership.
However, if you value lifestyle more than home ownership, you may feel constrained or regretful of the compromises you might have to make in the process of pursuing home ownership. You may not be able to afford to buy in the locations you’d want to live in for your lifestyle. So home ownership might require lifestyle compromises you may not be happy with later on.
Amid all the noise, pressure, headlines, and fear of missing out, can you give yourself the space to get clear on what you truly want for your own life, and why? The more intentionality you bring to this decision now, the less likely you are to regret it later.
Paridhi Jain is founder of SkilledSmart, which helps adults learn to manage, save and invest money through financial education courses and classes.
- Advice given in this article is general in nature and not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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