As we come into adulthood, there are many firsts to joyfully experience. Moving into your first home is one of the most profound (and challenging) experiences in life.
The first thing you’ll need to decide is if you’ll rent or buy your first home. If you're struggling with this decision; here’s a list of pros and cons to help you on your way.
Buying Your Own Home
Owning your own home is a dream come true for most as it represents one of life’s major accomplishments. It is right up there with graduating college and buying your first car, that said, do the pros outweigh the cons for you?
Pro 1 – Gaining an asset
Buying your own home is a great investment option for two reasons. One, the market shows that property investments not only hold the value of your cash but also grows it more safely when compared to investing in stocks or bonds.
Secondly, as a tangible asset, your house is a home you can call your own especially in old age when it matters the most. Moreover, it’s an added source of income if you choose to rent it out.
Pro 2 – Stability
One of the most attractive features of owning your own home is the stability it affords, so go ahead and get comfortable! Enjoy the luxury of staying in one place without the likelihood of having to move out when your rental contract expires.
It’s also a big plus if you have great neighbours and love being part of a community.
Pro 3 - Make Your Home Your Own
Your own home is just that – all yours! Meaning you can do with it what you will: renovate, paint and add fixtures as you desire. It’s a great opportunity to indulge your creative side and make it a true sanctuary without the worry of contract restrictions from a landlord.
Also, you can be sure that the money spent on improvements is all for your benefit and not the next tenant your landlord chooses.
Does owning sound like a great deal? Could be; but everything has it's cons.
Con 1 – Long-Term Commitment
Buying a home is probably the biggest purchase you’ll make and thus, you’ll need to be physically, mentally and emotionally prepared. Why? Because you’ll have mortgage payments for the next 20 to 30 years, depending on your loan tenure.
This is daunting as you not only need to have job security but your freedom to change careers and explore new business ventures will be restricted as well. Bottom line, make sure you’re ready to commit, since housing loans are a huge responsibility.
Con 2 – Cost of Maintenance
Everyday wear and tear, leaky pipes, and plumbing issues are common household problems. It’s also some of the most costly to fix, especially if left unattended.
Being an owner means you’re responsible for the bill, so do prepare maintenance funds.
Con 3 – Need Cash Fast? Not So Fast!
The process and cost of liquidating or selling your home for fast cash is time consuming and expensive. When you need emergency funds, this investment will not return your money as quickly.
You will need to get your house evaluated, find a buyer who will agree to your asking price and then a bank willing to give your buyer a home loan. Many owners looking to cash in quickly, often opt to sell at a much lower price than the market value just to get the property off their hands. If you're in such a bind - you're sure to lose on your investment.
Choosing to rent is a great option for those who want a bit of flexibility, but there are other cost and control related issues to consider.
Pro 1 – Mobility
Imagine that your next-door neighbour just adopted a loud barking dog that keeps you up all night, and a newly planned long-term construction project will cause massive traffic congestion near your home. You would want to move out, right?
Well, renting flexibly gives you the freedom to easily relocate. All you have to do is wait out your contract's lock-in period and simply look for another place.
The same is true for career persons suddenly offered overseas postings or those simply 'following the money' to a more lucrative position.
Pro 2 – Lower Cost
When renting, you’ll most likely pay 3.5 times your monthly instalment as a down payment. For example, a RM1, 000 a month rental home would cost you RM3, 500 (two-month deposit, first month rent plus a half-month deposit for utilities).
However, a deposit required to buy a home is at least 10-15% of the total price, so for a property costing RM300, 000, you would fork out RM30, 000 to RM45, 000 as a down payment. Now, that is a big difference. Furthermore, renting would help you evade other costs such as property taxes and legal fees.
Pro 3 – You Can Afford to Rent a Nicer Home
Since buying a home is so costly, you could use the funds you have saved in taxes and legal fees to rent a nicer home in a better neighbourhood.
Monthly rent payments in prominent areas often costs less than it would to make loan instalments in the same area (depending on interest rates, deposits and loan tenure).
If the rental life is sounding like just the thing for you, hold on anc consider the cons first!
Con #1 – Fussy Landlords
Internet forums are abuzz with tales of nightmarish landlords, who take the word ‘lord’ a little too literally. Realistically, you are looking at restrictions and limitations such as no pets, or no repainting without permission.
You may have to suffer through a number of home visits from your landlord looking to check-up on his/her property too.
Con 2 – No Investment Value
In the long run, all payments made on your rental home will not result in your ownership of that home. Instead, you will be helping someone else pay off their home loan.
Your funds that go toward your rent will do ONLY that, whereas home loan repayments create wealth for the buyer in the long run.
Con #3 – No Guarantees
Tenants depend upon the decision of the owner to renew a rental contract once it has expired. The owner has the right to ask you to move out and would most likely impose an increase on rental payments if you want to continue your stay when the contract expires.
It all comes down to what is most important to you as well as your financial situation. Take a look at the pros and cons and ask yourself, which suits your lifestyle more. As a quick guide on how to approach this situation:
Rent, if you are someone who likes to move around a lot, is unwilling to take on large loans and already have asset such as a family home in your name.
Buy, if you’d like to see your hard-earned cash turn into an asset, crave stability and don’t mind/can afford to spend more to maintain your property.
Are you looking to buy a home? Let us help you find just the home loan you need. After all, a big decision like that requires the right kind of research!