No one can ever agree to a specific one thing. It is the same for a house — whether to rent or buy. Some might choose to rent while others would go for a house purchase. Their decision depends on several reasons, ranging from personal to financial aspects. Well, that's them. What is your take?
The differences between renting and buying have circulating the internet and property sites, telling you that renting offers better flexibility to relocate anytime while buying gives you a sense of ownership. Of course, these differences are obvious. Take these obvious comparison into your account wouldn't cost you a valuable decision, then what is?
Yes, money! Financial! This is the deal. If you can be ready for the upfront cost like down payment & miscellaneous cost, you will also be ready to know the benefits of buying compared to rent in terms of the cost effectiveness. Now, let us help you break it down.
More than RM300k cost difference after years
Either rent or buy, of course you always wanted to live in the house for years. For a more in-depth elaboration, let's head over to this common scenario for both renting and buying a property worth RM500,000:
Buying (50-year simulation)
Monthly installment: RM2,280 (4.5% interest, 30-year tenure)
|Down payment (10%)||50,000|
|Upfront cost (legal fees, stamp duty, etc)||20,750|
|Running cost (loan amount, total interest payment)||820,830|
|Maintenance fees (RM200 monthly x 50 years)||120,000|
Renting (50-year simulation)
Monthly installment: RM2,280
|For 50-year (paying for monthly installment)||1,368,000 (2,280 x 12months x 50years)|
Renting cost actually depends on the rental yield (6%) so the rental price might be slightly higher. For a property worth RM500,000, a landlord might charge you around RM2,500 based on the rental yield whilst you need to pay only RM2,280 if you're buying your house at the same price. Plus, rental price is increasing yearly by 2~3%. If you want to avoid the increasing price, you need to always look for a cheaper place for rent. But how long would you keep this inconsistent cycle going? A thing to ponder.
For this 50-year simulation, you can see that the price difference is pretty profound. RM356,420? Wow! If you want to save more in the long run, buying your own house is definitely better than renting unless you don't mind paying for rental fee that relatively depends on the yield and increasing each year.
House is cheaper when the loan is fully repaid
Let's use the same example of RM2,280 monthly installment. If you are capable to pay extra for every month, you actually has lessen the total interest payments. For instance your loan tenure is 30 years where the total interest payments round up to RM370,830 nevertheless if you complete the loan 10 years early than expected, it'll be around RM233,261. That's one thing.
While you are still on the board of repaying the loan, of course, you'll bound to the interest rate. But once you repay the loan, your house will be a lot cheaper than you renting because your commitment to the interest has ended so no more monthly installment! If you buy a house, you can expect around 5 to 40 years to fully repay the loan. By that time, you already have a house where your kids can finally grow up conveniently. You get to save your money for years. Well, this would not matter much to you if you plan to rent a house for the rest of your life.
Once bought, it's your asset to resell or rent out
Financial wise, we always want to gain profit for anything we do or whatever we have. A house is one of your biggest asset. It is yours so you are flexible to resell or rent it out. Well, aren't you currently rent a place which is owned by someone who has an asset? When exactly is your time?
Renting might be cheaper for the first several years, but after years, buying a house would cost you cheaper. If you're thinking from a longer perspective, you'll know buying a house has better cost-effectiveness. After all, you want to live in a house for a long-time, right? That's why life plan is important. If you have set your dream to own a house, maybe another questions will bang your head — a new or a sub-sale property? A high-rise or a landed house? Further all your queries by discover our articles, and you are set to go!