by Mark Johnston
There are times when it is obvious that buying a property is the best decision, although most of the time it is much less clear.
There is nothing wrong in the current financial climate in deciding to rent a property instead of buying, especially if circumstances require it.
Many would be buyers just do not have the money to put down deposits that are now required by most lenders, let alone have anything left over for furniture.
Depending on individual’s current income, location and prospects for the future, renting does have some advantages that would not be available when buying a property.
There are many valid reasons for renting such as when moving to a new area, renting allows time to scope out the best places to buy; it also allows flexibility as people may not need to stay in a specific area for long.
Renting also allows people to test commutes to work, the quality of zoned schools and other factors that can make or break a neighbourhood, with out being sealed in to a long term financial commitment such as a mortgage.
Buying a property can tie you down; in these times of high unemployment many people are finding themselves having to relocate to follow their jobs. If you are renting and are offered a job in another city or even country you can be there in a few weeks. It may cost a few months rent, but it is quick, easy and the cost is predictable. There is also no need to worry about facilitating the sale of a home from a distance.
The main argument against renting is that rent is wasted money that could instead be invested in to buying a property. However the flaw in the argument is that the entire mortgage payment is not an investment.
A mortgage payment has 2 parts, one is the repayment of the amount borrowed and the other is a payment of interest to the lender. Therefore if paying rent is a waste, then you could say the same for paying interest.
When deciding on whether to rent or buy the cost of rent to the cost of paying mortgage interest should be compared. Rental yields should not be compared to mortgage interest rates at the current time. They both need to be looked at over the long term.
Many experts believe that it is very probable that mortgage payments will be a lot higher over the next 5 years, but they also believe it is safe to assume that like house prices, rents will roughly follow income growth over the long term.
Mortgage interest is not the only cost of owning a property, when owning a property it has to be maintained, insured and furnished. Whereas in most cases with renting the landlord deals with that.
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