Owner or tenant: what are the advantages and disadvantages?
Buying or renting is a crucial decision often influenced by personal factors such as your lifestyle or plans. One of the options can be better suited to your expectations and desires. You will have to weigh up the pros and cons.
If you choose to rent, you will never own the property in which you live. That means that you will not be able to carry out any work on your home, or only little ones, and only with the agreement of your owner. That means that your home will never be a hundred per cent to your liking. In addition, the monthly payments you make for your rent will be a permanent 'lost' expense, as there will be no return on your investment in a rental property. However, you will retain greater flexibility in case of a move, and your rent will not impact your taxation.
On the other hand, if you buy, you will own the property which allows you to have a great deal of freedom in terms of renovations and layout of the home. Thus, it can be perfectly to your taste. However, you will be subject to tax on the rental value. Don't worry, as an owner, you will be able to deduct certain costs such as mortgage interest and maintenance costs from your tax bill. As a result, the amount of work carried out in your home can, to a certain extent, be deducted, thus reducing the amount of tax on the rental value. In addition, a potential gain can be realised if your property is resold. So it turns out that owning a property offers many tax advantages that renting does not and is often a profitable option.
A monthly cost to compare
When making your choice, you will inevitably have to compare the monthly cost of the two options, as this is a determining factor. For a reliable comparison that is as close to reality as possible, it is necessary to compare the "non-recoverable" costs that you will have to pay in each situation. These are funds spent that you will never get back.
So, as a tenant, it is imperative to include in your calculation:
- Your net rent;
- The charges for the flat.
In the case of a purchase, you need to account for:
- Your mortgage interest
- Your maintenance costs;
- Your amortisation.
However, it is important to note that the amortisation is not considered an expense in its own right. In fact, even if it is included in your monthly budget, this is the reimbursement of your mortgage. As a result, it contributes to the building up of capital that will eventually belong to you. It is therefore not totally "lost". So buying is often an advantageous choice.
This calculation method will give you a quick overview of your monthly expenses in both configurations. However, this is only a very simplified version of the calculation. Other parameters such as your income, the purchase price, the amount of equity you have and the length of time you rent or own the property can also influence the result and therefore the comparison. We still advise you to turn to a financial advisor for a more complete and personalised answer.
Our financial partner, Strike, will be able to give you more information on this point, so please visit their website and contact them.