The age old question of renting versus buying is one I have wanted to address to help people decide, for quite a while. After burning some midnight oil to crunch some numbers, the analysis below shows the costs involved in the following scenario:
In this example, we examine the 1 year, 5, 10, 15 & 20 year costs of buying a 75k apartment to live in, verses renting the same. Each year, the apartment might grow in value, or not & these scenarios are compared. At what point is it cheaper for the tenant & when does it become cheaper for the buyer? How much more or less does the buyer pay than the tenant or vice versa in the short, medium & long term? Lets look at the data. Below are the assumptions to the purchase & rental.
- A house purchase of 75,000e.
- Growing at different rates, from -1%, zero, 1,2,3,4,5 & 6% year on year average.
- Furniture of 2k required by the owner occupier, no furniture bought by by a tenant.
- Rental costs charged at 5% (typical for the Romanian market) of that years property price, with the same growth as used for the buyer calculation (e.g, if 3% growth is used to calculate owner profit, the same inflated property price is used to calculate the 5% rental figure).
- Buying & selling costs of 6k.
- Annual repairs of 300e (paint, damp, plumbing, electrical etc) & 5-yearly expensive repairs such as boiler changes.
- Bank interest charged at 5%.
- Mortgage debt reduces linearly over 20 years as payment is made each month to reduce mortgage.
What is your view on renting or buying? Comments below with reasons please. An article will follow soon to examine the financial differences.