After the housing bubble we have been suffering these years, there is still many people around me who who still think that buying a home is a good investment and is always better than renting.
In this post I’ll talk about the differences between owning a house and renting one, and I will expose how the buying of a house is not a good investment method.
In Spain, the real estate market prices have dropped almost 50% from 2007 until now. We are at the same levels that 2002, although the economic situation is quite different as the funding to pay one is much worse.
But, does it really makes sense owning a house? These are the main advantages and disadvantages of owning vs renting:
- Once paid, it will be completely yours and you’ll live “for free”.
For free between large quotes because you will be paying the different taxes (property taxes, garbage…) and home insurance, far from free.
- Is your house and you do in it whatever you want to.
You don’t have to be asking the renter for permission, if you want to pain, have pets or make a big holes in the roof to hang hams you can do it. Although for some things, you will need the permission of your community (if an apartment) or a building permit from the City Hall.
- Tax benefits of owning a house.
This depends completely on the city you live in, but for example in Madrid, if your salary is over 24.107,20 € you don’t get any kind of tax benefit. And if your salary is less you still need some more requirements.
- You will have a place to call home.
This one depends on each one.
- You will have the pride of ownership, the Spanish dream haha.
I better not talk about this…
Now the drawbacks
- You are tied to the place where the house is.
Many things can happen for which you should move; job change, get tired of being in the same place forever, your building/neighbourhood gets filled with “bad people”, natural disasters…
- If you have trouble paying for it, your house get seized and lose what you have already paid.
A house is not easy to sell, is a costly (notaries, taxes…) and long process. Also, do not forget that (at least in Spain) demographic growth is negative and there are too many houses.
Renting it is the same or worse, because you’ll hardly have tenants the twelve months of the year, not to mention if they just destroy or occupy it. And you will keep paying the taxes and the repairs they need.
- You need a stable source of income.
If you live of renting, when you start earning less salary, you just go to a smaller house or to a less quoted neighborhood. And viceversa if you earn more.
You cannot do this as owner, if you start earning less you have to keep paying the same mortgage as well as if you start earning more.
- You have to spend moeny on furniture and appliances.
Plus the corresponding repairs and maintenance. This does not happen renting.
- You tend to buy and accumulate useless things.
When you change where you live more or less often, you are more conscious and careful about what you buy and avoid buying impulsive-useless things.
And these are the advantages and drawbacks that come to my mind. If you want to add more or comment one of these do not hesitate.
I have also found this article by The Economist titled “Economist who just won nobel prize thinks housing is a terrible investment”.
And with this New York Times’ calculator you will be able to calculate if you should buy or rent a house based on many factors. Although it doesn’t take into account some of the points I have listed, of course.
This post was written more than 6 months ago, maybe things have changed or I don't think the same way anymore