By Tam Ging Wien (guest contributor)
To buy or to rent? This has been a discussion point that has surfaced many times during my interaction with friends, colleagues and relatives. There is a clear divide between these two opposing views of property ownership.
The renting camp will say that the property cycle is at a high now. It would be better to sell their current property, rent a place and wait to buy after a correction.
The buying camp will say they would rather spend the money paying to own their own home rather than help the landlord pay for theirs!
The influence of culture on the home ownership decision
Depending on which region of the world you come from, the culture, government policy and influence of your upbringing will affect how you think about buying versus renting. According to Eurostats, 2012 home ownership rates in the developed nations of France, Austria, Germany and Switzerland stand at 63.1%, 57.5%, 53.3% and 43.8% respectively. In contrast, according to various other sources, home ownership rates in Singapore, China and India are 90.5%, 90.0% and 86.6%.
Asian nations clearly show a stronger emphasis on home ownership.
So, what factors would influence a person’s decision to buy or rent? Here are some factors to consider based on my discussions with different groups of people:
Reasons to Rent
- You do not feel prepared to make a large financial commitment
- You feel like you do not have sufficient knowledge to make such a large decision
- You view property prices as trending downwards and prefer to buy after the correction has run its course
- You have just recently immigrated from another country and are unfamiliar with the local property market
- You want to have a location convenience (e.g.be near a school or place of work) but are unable to afford the purchase
- You want to start or raise a family immediately as the process of buying can be fairly long
Reasons to Buy
- You view property as a vehicle of financial security and wish to pass it on to the next generation
- You want the freedom to renovate the house according to your own taste and lifestyle
- You wish to take advantage of low interest rates – buying makes sense as paying the mortgage may be cheaper than paying rental
- You are buying with an investment objective in mind, expecting capital appreciation and wishing to create an additional source of income
You can buy and rent at the same time
My advice is that you should not look at buying or renting as a mutually exclusive decision. You can buy and rent at the same time!
When I acquired my first property in 2005, far away from the city area, I was still single and living alone. I did not require such a large space and maintaining the unit would require more effort. I instead chose to rent it out for $1,500 a month and then rented a small room for $400 near the city fringe. The monthly mortgage to the bank then was about $1,200.
The additional stream of income from my property helped to offset my rental. Had I stayed in my own place, I would have had to fork out $1,200 every month to the bank, affecting my cash flow. Instead, I now had to pay only $100 a month, and could ride the capital appreciation for the next nine years while still enjoying the location convenience!
By guest contributor Tam Ging Wien, an avid investor and blogger who spends his time empowering the masses in financial education.