Should you buy a property now or continue renting? It’s the age-old question. Most advice relies on gut feeling or social pressure. At Propmula, we look at the numbers.
The "Dead Money" Myth
Many people believe that renting is just "paying your landlord's mortgage." While true in a sense, buying has its own unrecoverable costs: interest, stamp duty, renovation, and maintenance.
When you calculate the total cost of ownership over 10 years, the math might surprise you. It often depends on two key variables: Rental Yield and Capital Appreciation.
"Buying a home is not just an investment; it's a forced savings plan. But renting offers flexibility that can sometimes lead to better investment opportunities elsewhere."
The 3 Key Factors to Calculate
- Entry Cost: Downpayment, legal fees, and stamp duty (usually 15% of property price).
- Holding Cost: Interest payments (not principal), maintenance fees, quit rent, and insurance.
- Opportunity Cost: If you invested your downpayment in the S&P 500 instead of a house, what would it be worth?
Our Conclusion
If you plan to stay in one location for less than 5 years, renting is almost mathematically superior. If you plan for 7+ years, buying starts to make sense, provided the property is priced correctly.
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