Rent versus buy? a waste of money or not?

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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.
Owner occupier costs versus tenant costs over 20 years with 1% market drop year on year. Throughout the 20 years, the tenant is always better off than the buyer.

 

0% growth
Owner occupier costs versus tenant costs over 20 years with 0% market growth year on year. Tenant pays 8,800 euros more than owner, over full 20 years. At 10 year point, both are approx even. After that, buyer is advantaged.
Owner occupier costs versus tenant costs over 20 years with 1% market growth year on year. Tenant pays 32,800 euros more than owner, over full 20 years. At 7 year point, both are approx even. After that, buyer is advantaged.
Owner occupier costs versus tenant costs over 20 years with 2% market growth year on year. Tenant pays 59,200 euros more than owner, over full 20 years. At 5 year point, both are approx even. After that, buyer is advantaged.
Owner occupier costs versus tenant costs over 20 years with 3% market growth year on year. Tenant pays 91,000 euros more than owner, over full 20 years. At 5 year point, both are approx even. After that, buyer is advantaged.
Owner occupier costs versus tenant costs over 20 years with 4% market growth year on year. Tenant pays 128,000 euros more than owner, over full 20 years. At 3 year point, both are approx even. After that, buyer is advantaged.
Owner occupier costs versus tenant costs over 20 years with 5% market growth year on year.Tenant pays 172,000 euros more than owner, over full 20 years. At 2 year point, both are approx even. After that, buyer is advantaged.
Owner occupier costs versus tenant costs over 20 years with 6% market growth year on year. Tenant pays 224,000 euros more than owner, over full 20 years. At 1 year point, both are approx even. After that, buyer is advantaged.

 

The analysis behind these graphs are shown in this excel.

What is your view on renting or buying? Comments below with reasons please. An article will follow soon to examine the financial differences.

3 COMMENTS

  1. Thank you for making this guide.

    I am planning to buy a place in the next year or so but I have heard organising a mortgage is like pulling teeth. I have around 40k in cash savings. How difficult is it to get a mortgage?

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