Flat Finance: Renting Versus Buying

Photo by J. Star

Searching for a new place to live can be either an exciting adventure or a nightmare. To make the hunt easier on yourself, first start with the basics: do you want to rent or own a flat? There are several pros and cons to consider before you decide. The following is a guide to the ins and outs of renting and owning.

Deposit versus Bond

The first major difference between these two options would undoubtedly be the size of the first initial payment. If you wish to purchase the flat, finding a bank that will grant you a mortgage without paying a deposit of at least 10% upfront will be rather difficult. It’s more common to pay 10-20% down, because not only will the bank have more confidence in your financial situation, but your monthly mortgage payments will be smaller than a 0% down mortgage deal. If you’re renting, about a month’s rent is usually the right amount for the bond payment, which assures the landlord that you will be able to remain financially secure and continue to pay your rent over time.

Depending on the overall price of the flat and the percentage you’re willing to put down, a deposit can be anywhere from a few thousand dollars to over $50,000. Meanwhile, a bond for renters will only cost a few grand, on average. If you don’t have a lot of money upfront, then renting is usually a better option.

Additional Costs

When purchasing a flat, there are several more fees tacked onto the deposit that you must account for, including: legal fees, mortgage arrangement fees, costs of moving, new furniture and home décor, etc. With renting, the only additional fees you pay on top of the bond payment are perhaps some agency fees and the cost of new furniture (although many rental flats already come furnished, saving you tons of money, especially if you’re a first-time renter).

Maintenance

This one is simple: for buyers, you have to pay for maintenance and general upkeep on your flat. For renters, the landlord takes care of it.

Insurance

Naturally, to protect your investment, you’ll be wanting to buy a good insurance plan for your newly-purchased flat. This can usually cost anywhere from $50 to a couple hundred dollars per month, depending on the insurance plan and what it covers. You not only need to protect your flat, but your possessions. With renters, landlords ought to have insurance protecting the building; you just need to get insurance for your possessions, which usually costs less than $100 per month.

Additional Benefits to Renting

With renting a flat, you have much more mobility and flexibility in your location. It’s generally much cheaper to rent than to own, and the monthly costs (maintenance, insurance, property taxes, etc.) are much lower. If a problem arises, no worries, you’re landlord will take care of it (assuming you’ve a good landlord!) If you don’t have much money upfront and don’t want to be trapped in the same place for many years, then renting a flat is probably a better option for you.

Additional Benefits to Owning

Although costs will be higher (both upfront and over time), the fact still remains: you own that flat! That means, when it comes time to move to a new location, you actually get a monetary return on your investment, not just a wave goodbye from a landlord. Or, if you continue paying off the mortgage until the flat is completely paid off, you are now the proud owner of a valuable asset that is all yours. Nobody can evict you for missing payments, because payments are now a thing of the past (once a mortgage is paid off, all you pay for now is the insurance and upkeep!) Also, you have a lot more flexibility with the design and layout of the home, which means no need to go to the landlord for permission to change anything.

Owning a flat can be a wonderful experience, but there are many more short-term financial benefits that come from renting. At the end of the day, you must evaluate not only your finances but your own lifestyle needs as well. A thorough investigation of the factors you’re looking for in a flat can help you reach a decision on whether you want to rent or buy a flat.