How many times one is talking with family, friends or colleagues and someone brings up the issue of the old dilemma between renting or buying a house. It is striking that again and again the majority position is to buy (within the possibilities), since there is a widespread belief in Spain that rent is literally throwing money (enriching the landlord) and give up having your own house. This belief arises from a culture of property rooted in our society and transmitted from generation to generation.
In recent years, and especially after the severe crisis that Spain has suffered from 2008 to 2014/15, we believe that this culture is changing: either the new generations do not have access to buy a home due to the precariousness of the labor market and the increases in the prices of real estate, or else they think about it very well before deciding to buy a property requesting a mortgage.
So, at the current market moment, is it better to buy or rent? Everything depends on the particular situation that will determine the possibilities, and expectations.
Buying is a good option, although it requires some initial capital to access to a property (10% of the value of the property). Let’s see the pros of buying vs. renting:
- When the purchase is in a location where the buyer wants to stay “for life”, there is an important sentimental motivation for the purchase that will justify the possible extra costs or efforts.
- If the moment of the Real Estate market is adequate: affordable prices, low interest rates, expectation of appreciation of the property in the future, etc.
- To buy can drive you to lower monthly payments than a rent bullish moments like the present ones, where rental prices can literally double the prices of mortgages, especially in places like Sant Cugat del Vallés and certain neighborhoods in Barcelona.
- Owing your own house allows you to have the chance to sell it in the future making profits, although the market is cyclical and fluctuates. As with any asset, the benefit is in the purchasing price.
- In a property house you can make your own reforms, i.e. pulling a wall to make the room bigger.
On the other hand, renting is also an interesting option, although sometimes it is the only option (at least for a certain period of time). Let’s see the advantages of renting:
- Renting gives you the flexibility to move to another site either because you are going through a bad time and you need to adjust the cost of housing, or to a larger home if you live in which you has become too small. On the other hand, the labor market in 2017 is an eminently international market, and mobility is high. In this sense, renting gives you the freedom to leave your home and move to another city without great costs or worries. Although it is true that if the property is yours you could rent it and pay the mortgage with the rent, it requires several steps and it is not as simple as notifying the tenant with the stipulated period and leave.
- During the first years of the mortgage, a high percentage of what is paid to the bank monthly (~ 70%) are interests, with which the cost of opportunity of renting vs. buying is small. In other words, if you think you are going to need a different house after five years, our suggestion would be to rent before buying it in year X and sell it in X + 5 since in the first five years the amortization of the capital is not significant . In addition, when you get into a mortgage you end up paying a non-negligible amount in interest over the life of the same to the lender (the bank).
- Renting eludes the risk of default and, consequently, to end up losing your home if at the time you could not meet the payments the value of the mortgage is higher than the market value of your home.
- Important aspects to consider are the state of the property and the building where it is located, the type of neighbors, surroundings (shops, services), etc. If any of these does not fit your requirements, by renting you have the possibility to pack your bags and look for something else.
- If you want a home in a premium neighborhood of the city, renting would be the only way to access it due to the high prices per square meter of the Premium neighborhoods. In addition, by renting you can adapt your home to the needs of each stage of your life.
In summary, the decision to buy or rent will depend on the situation of each one. Both are good options, and each one should value it carefully. It is not an easy decision, and all the pros and cons should be deeply considered. If you are at that moment, from Swan we hope we helped you to make the best decision!
