Do You Rent or Own Your Home?

Do You Rent or Own Your Home?

There’s no doubt about the fact that you’ll find the comment “I can’t believe your rent is so low!” under my income and expenses reports the most. As someone who tries to min-max his way towards financial independence I obviously try to keep my rent as low as possible. Because my rent-to-income ratio remains below 20% I succeed at doing so, if I may say so myself. However, many of my friends disagree with this approach and believe I should buy a home as soon as possible. Are they right?

The rent versus buy debate clearly is a very lively one because it applies to everyone. People need homes to live in, some exceptions notwithstanding, so you can bet on it that everyone and their dog has an opinion on the matter, often without good arguments or data to back up their claims.

Because I think highly of our community members when it comes to personal finance and rational thinking, I thought it a good idea to ask you guys on the matter. To some home ownership is a clear part of the financial independence strategy, while others believe renting gives them much needed freedom and better financial prospects far into the future.

So, how do you feel about renting or owning your home?

I’ve been going over the benefits and drawbacks of ownership the past few days, both financial and otherwise, and have come to the following conclusion: to me, renting makes more sense from a financial point of view, whereas buying my own place to stay affords me more security over the long-run.

I guess that’s not the clear answer I was looking for! Let me explain though.

Let’s assume that my monthly expenses remain the same except for the housing portion of the equation. In the first scenario I’ll continue to rent my current home together with my roommate. We both enjoy a spacious room, a fully-equiped bathroom and kitchen, and enjoyable living quarters for the price of €350 each. In a second scenario I decide to ditch my roommate and buy my own apartment. Last but not least, being the financial wizard I am, I’ll also come up with a third scenario where I buy an apartment and have my roommate rent one of the rooms.

To be clear, I’ll be putting 20% of the home purchase price down so I can enjoy the lowest fixed interest rates available. I’ll furthermore try to pay off the apartment in 15 to 20 years, which isn’t too bad all things considered. The price of a one bedroom apartment hovers around €250,000 including all taxes and fees in my area, while a two-bedroom costs about €300,000 at the very least.

When working Excel’s magic that gives us these numbers:

Rent current home Buy one-bedroom Buy two-bedroom (roommate)
Mortgage €0 €200,000 €240,000
Years - 20 15
Interest rate - 2.00% 1.80%
Monthly payment €350 €1,010 €1,520
Paycheck €2,000 €2,000 €2,000
Rent income - - €420
Free cash flow €1,650 €990 €900

As you can see, there’s a huge difference in available cash flow each month. Even though my expenses are low, my monthly savings would be reduced to less than €500 on average if I were to purchase real estate. That’s only one third of my current savings potential! You can already guess what that means for my future dividend income.

Spoiler alert: I can forget about financial independence in 15 years’ time.

We should nevertheless look at what ownership does to our financial situation over the long run. In a world without inflation, no real estate appreciation or home maintenance, the best option after twenty years would be to buy a two-bedroom and have a roommate for twenty years. That’s because you get the following numbers when considering a 5% annualised return every year on excess income:

Rent current home Buy one-bedroom Buy two-bedroom (roommate)
Invested capital €472,689 €201,407 €267,783
Apartment value - €200,000 €240,000
Total net worth €472,689 €401,407 €507,783

Of course, I’ve assumed quite a lot and things will most likely play out differently due to external factors, but it’s clear that renting my current place isn’t such a bad deal at all. Two things are clear as day to me.

First, ownership in Belgium is an extremely expensive option to pursue in my area because the housing prices are through the roof. The OECD seems to confirm this with one of its recent studies in which it stated that the price-to-income ratio is by far the highest in Belgium. Note also that the housing price-to-rent ratio is on the upper end too, which seems to confirm my thesis that renting a home is relatively cheap over here.

Second, by taking on a mortgage this early on in my life I’ll be forgoing the power of compound interest for the potentially added security of home ownership in the future. When you take on debt to the tune of ten times your annual net salary that should come as no surprise, but it’s something many people tend to forget.

When all is said and done I remain a big proponent of home ownership for most people, simply because it forces them to build some equity. The monthly mortgage payments make it so that after fifteen to twenty years everyone at least owns their own place, which irronically is the reason why housing is so expensive in Belgium.

Even though I’d love to own my own place, which I’ve mentioned as recently as two weeks ago, I don’t think it’ll happen in the near future. That’s too bad, but renting also provides me some tangible benefits that home ownership doesn’t. Geographical independence, less time spent on home maintenance, and less financial risk are only three of the many advantages of renting.

These three things tie back to one simple principle: predictability. A renter never has to worry about the heating breaking down or the roof leaking, and their subsequent repair costs. Because those costs are carried by the landlord they’ll never strain my monthly budget. Apart from rent increases due to inflation I’ll never have to worry about significant jumps in housing costs.

So for the time being I’ll remain a happy renter. Besides, I can always invest in Home Invest Belgium (EBR:HOMI) and own real estate that way, can’t I?

After I’ve explained my position and predicament do you still feel strongly for either renting a place or becoming a home owner? Please share your view in the comments as I’m eager to learn other people’s views on this topic!

75 Comments

  1. I prefer owning. I bought my house when the market was on its way down, but not down enough 2007. It’s 17 mins away from work. Unlike the people in the city (not many people around here want to live in the city or live close to work).

    My payment is also below 20% of my income. Then I decide to rent part of my house. Which I can still have privacy. This even cut my housing expense even lower. Had I decide to buy a house in the country like my colleagues, I can’t do that.

    I had some regret not waiting a bit longer, but who knows, I wouldn’t get this house. Here, I can grow a garden and fruit trees to my liking. :). Later, if I have kids, well build treehouse. 🙂

    1. Vivianne,

      From the sound of it you’ve found the perfect place to own at relatively low prices, so I understand why you’d prefer owning. I’m also looking for something that gives me easy access to major stores, facilities, services and work.

      Pretty amazing that your mortgage is less than 20% of your income. I don’t think I’ve met anyone that has a monthly payment threshold that low in Belgium. That’s probably because our incomes are much lower compared to the house prices (or vice versa) and because our mortgages work in a completely differen way with much shorter time frames, if I’m not mistaken.

      Don’t worry about not getting the lowest price possible! You were happy when you bought the place and that’s what counts. Also, prices over here haven’t dropped in fifty years, so be lucky they did back where you live! 😉

      Cheers,
      NMW

      1. Hi NMW,

        I just read this post and have a couple of questions.

        1) Your current apartment that you rent costs 700 euro/month ( split half ways between you and your roommate). What would the cost of that apartment if you were to buy it?

        I think it is important to do apples to apples comparisons. If the apartment you live in costs 300,000 euros, then your landlord is losing money renting to you.

        2) What is the amount of property taxes that are paid annually in Brussels ( or the city you live in)?

        3) What is the best fixed interest rate on a 30 year mortgage?

        4) How long do you see yourself staying in the current city?

        I have always rented, but mostly because I have moved around a lot more than others. Where I live in the US however, owning is a much better deal financially if I could stay in one place for say 8 – 10 years. Actually, I could get a house that is almost double the size of my rental and pay the same amount in mortgage, insurance and taxes to what I pay in rent. The wild card is the repairs and maintenance – I have two left hands unfortunately 😉

  2. A major benefit once you have paid down the mortgage will be that your monthly costs will also have declined at a rate of the current 350€ per month. At a conservative yield of 3% that would be equivalent to not needing 140.000€ in dividend paying equities. (I’m aware that owning a house or apartment will bring its own costs.)

    The value of an apartment tends to track inflation really well over long periods of time and you’ll be using leverage since you get the money for your apartment up front.And finally don’t forget the huge tax breaks you get in Belgium when buying your first house or apartment.

    As a 27 year old Belgian I’ve “run the numbers” and in our country homeownership still trounces renting by a mile over a 15 year period of time.

    1. AzErTy,

      Absolutely! My monthly living costs will be much lower once the home is payed off and if you’re looking to replace your expenses through passive income that’s a major factor. However, having your own place also brings about extra costs that I haven’t accounted for, just like you said.

      Many people tell me that home maintance costs about 1% of the purchase price, so that would be about €200 a month when you take the €250.000 example. On top of that there’s recurring costs for an apartment (about €100 in most places), which equals out the €350 rent gain. I know this is a long shot (natte vingerwerk), but it’s not as black and white as I’d like it to be or you portray it to be.

      The tax breaks aren’t as huge as they once were anymore. I’m actually a big proponent of doing away with them entirely as they’re one of the reasons why housing got so expensive. Plus they’re geared towards high income and two-income households, which is a ridiculous policy from a social point of view.

      If you still have your numbers I’d be interested to compare them to mine as I’m genuinely looking for someone that’s familiar with Belgium to have decent conversation with on this subject. Can I contact you through e-mail?

      Best wishes,
      NMW

  3. I am a firm believer that if you are settled somewhere on this earth it’s better to buy vice rent. For some people depending on where they are in their lives it could benefit to rent. I plan on moving to the UK in about a year from now, and as of right now I don’t plan on living there forever, but the moment I do I will definitely buy something.

    1. Petrish,

      If you’re planning on moving, renting definitely makes much more sense than buying something. That’s why I also believe that to many people buying a home is advantageous: it’s unlikely that they’ll move and they build equity at the same time.

      Moving to the UK is a big step though! I’m looking forward to read more about your adventures this side of the Atlantic in the future.

      Cheers,
      NMW

  4. NMW,

    nice post! I already calculated the scenario of buying an apartment too. Anyway, my result was the same. Most of People thinks that it’s better pay mortgage instead of rent and its own after 20-25 years, but they don’t think about that after that time mostly a lot of stuff need to be repaired and also additionals side charges which are not calculated.

    Sometimes its better to buy a house/apartment for passive income issues. But in this case the property should be in a big city – outside it will be less worth than the buying rate including interest etc. In Germany the property buying costs are overvalued, so mostly no chance to get a good investment.

    Another point is definitely the freedom. Free to move every time and everywhere you want.

    Cheers,
    Patrick

    1. Renters usually doesn’t have a say in what appliance the landlord buy. Where I own, when my fridge went beyond repair, I’ll buy top of the line fridge to my liking.

      Maintenance is part of the process, depend on what you buy, when you buy a newer place, you don’t have to worry for 15 yrs (hopefully). Also, I hate moving, so if the landlord raise the price, or decided that you’re a bad tenant, they kick you out.

      Rent or own, it goes both ways, equally as much headache.

      1. Vivianne,

        That’s true! Many landlords don’t consult their renters on what appliances they prefer. Mine does, however, which is absolutely terrific. Because he values high quality products more than cheap junk, I benefit too as a renter.

        As a renter I’ve never had much headaches, but that’s probably because I’m a good tenant: I always stick to the rules, always pay on time, etc. Dramatically bumping up the price is rather impossible over here, so I don’t have to worry about that.

        Cheers,
        NMW

    2. Patrick,

      I’ve heard of German housing prices going up quite a lot the past few years. Do you think it has anything to do with the low yield on bonds and general low interest rates? Do you feel like more individual investors are flocking towards real estate?

      Some commenters have pointed out that renters often don’t save as much as people who own their home (due to different lifestyles, etc.), which would make buying real estate a better option over the long run. However, you and I both save a significant portion of our income, so that doesn’t really apply to us.

      Even though home ownership isn’t the best financial option, I’ll probably buy a home in the future simply for the added security. In the past eight years I’ve also moved about four times, which is starting to take its toll. You just want to settle down after a while. Even though you give up the freedom to move anywhere you want (although you can always rent out your property), the benefit of having a stable home is also worth something.

      Best wishes,
      NMW

  5. Nice post, NMW. We went thru this exercise last year when my wife and I were deciding whether to buy a house or keep renting. Eventually, it came down to the fact taht we wanted more space and room to grow. The house we ended up buying was by no means a good investment from a financial perspective – but we are happy with it and we will have a place called home for the rest of our lives. Running the numbers, renting was just a little bit cheaper than owning here in Canada based on the current market conditions (although I expect a housing correction over the coming months/years).

    Again, a very good post. Keep em coming!
    R2R

    1. R2R,

      Great to hear that you and you wife found a place you can call home for the rest of your lives. It may not have been the best decision financially speaking, but comfort and ease-of-mind is worth something too.

      Thank you for the kinds words!

      Cheers,
      NMW

  6. Both have their merits but my thoughts are that if you want to settle somewhere buying or building a home is the way to go. Not only does it give great peace of mind because you don’t have a landlord who can kick you out of your place (it happens sometimes) but you also have the feeling that the place is yours and that you can do with it what you want.

    The downside perhaps is that because it’s your own home, you’re probably going to spend more money on home improvements 🙂 A landlord will only replace things went it’s absolutely necessary and you will probably have no choice in the matter.

    But I don’t think your own home should be a purely financial decision. One of the great advantages of owning a home is that you can change it the way you want (within legal boundaries of course), if you want a new kitchen, a new badroom, a veranda, a carport, better insulation, or whatever else you want you can do that. One of my friends rents a studio and he isn’t even allowed to add some simple security measures against burglars.

    I like gardening for example and fortunately I have my own garden in which I can do as I please. As a renter I would probably not buy shrubs or trees that can cost as much as 25-50EUR and would probably not get to enjoy the nice spring blossoms I see right now when I look out of the window 🙂

    While I agree some people can do much better financially by renting, I don’t think this is the case for the average Belgian. Having a mortgage forces people to save money and usually results in a significant net worth once the mortgage is paid off. It is my impression that most people who rent do not save/invest more than homeowners and ultimately end up in a worse position.

    1. ThomasDV,

      You touch upon a very good point that I also mentioned in my post: buying a home forces people to “save” and build equity. That’s why I think it’s a good idea for many families to purchase a home rather than renting. Luckily many Belgians consider their homes a piece of their retirement portfolio, so almost everyone tries to become a home owner as soon as possible.

      Renting obviously only makes sense if you save a lot of money on the side. Your impression that peope who rent don’t save as much could be true, although I can’t really confirm it as many of my friends are renting and trying to save as much as possible to purchase an apartment.

      Just like your friend I can’t change too much to the interior of my current home, but I don’t mind too much. As long as it’s nice and cozy that’s fine by me. I’m hardly every home anyway, so! 🙂

      Thank you for chiming in and showing some of the advantages of home ownership.

      Best wishes,
      NMW

      1. Indeed, becoming a homeowner is something that most people understand and feel good about. It’s something physical they can relate to and while the value isn’t guaranteed to rise it can never become completely worthless. Most Belgians are prety wary of investing into stocks and those that do often don’t have a good strategy like DGI.

        “Your impression that peope who rent don’t save as much could be true, although I can’t really confirm it as many of my friends are renting and trying to save as much as possible to purchase an apartment.”

        I hadn’t considered that scenario. There are indeed a lot of young people like that but I was thinking of (older) people who rent but don’t have the goal to acquire a home.

        I was once in a somewhat similar situation, my wife and I managed to save up a lot of money so we didn’t had to take out a huge mortgage. Just like Vivanne my mortgage is under 20 percent of our income but that is far from the norm of course.

        1. ThomasDV,

          True that! Belgians are extremely wary of the stock market. You have no idea how many people have been telling me that I’m gambling (sic) my money away. Of course, they all believe you should become a day trader that buys low and sells high. No wonder they believe that stocks are a loser’s game.

          Ah, maybe I should have made clear that I obviously meant younger people. It’ll be harder and harder for young families to purchase a home in the future, I believe. Most of my friends are high income and they all need a significant amount of time to save up enough for a decent downpayment. I can’t imagine how long it would take if you make much less as so many other people our age do.

          You and your wife did great for yourselves if your mortgage is under 20% of your total income. And you probably also get to enjoy a lot of tax breaks too on top of that! I don’t think I know of anyone else that has mortgage payments this low, so congrats. 🙂

          Cheers,
          NMW

          1. We’ve always been big savers and little spenders so if you can keep living at home and keep up with this for several years you quickly build up a lot of capital. In real-life I don’t like mentioning how little our mortgage is as most people don’t understand how we did it.

            Whenever I talk about stocks to someone in real-life they usually tell me to be careful with it, I get the same comments as you. Even my wife sometimes thinks I’m crazy for “gambling” so much money on stocks. Like a lot of people she can’t really grasp what I’m trying to achieve, although I’ve already convinced her of doing the same, albeit on a much smaller scale :).

  7. Buying definitely makes sense where I live. Once I know what city I want to live in long-term, I’ll buy. I’ll get roommates until I get married (and even keep a roommate or 2 after that if we have separate spaces/entrances).

    1. Will,

      You and I share the same idea with regards to buying if you’ll stay somewhere for a long time. That’s by far the best way to go if housing prices are decent. And adding in a roommate or two will only sweeten the pot from a financial perspective.

      Cheers,
      NMW

  8. When considering the rent versus buy dilemma, it all depends on market conditions. The housing market is obviously really important – how much deposit would you need, what interest rates could you get, etc. But it also depends on the stock market, because you’re going to be tying up a large chunk of capital for a house deposit.

    For you, renting definitely makes sense based on your current situation and the markets. You can make a decent amount of money by investing your excess capital, whereas you’d need a substantially larger sum to put down for a deposit. Since your investing snowball is likely to grow substantially over the next few years, it makes more sense to put money into the stock markets and grow that income as fast as possible.

    For us, getting a mortgage was more sensible, given the extortionate rental market round here. Rents go up by well above the rate of inflation every year, AND there are extra ‘processing fees’ on top. It is totally unjustifiable, and totally unaffordable. The situation is not the same in other areas, but in and around Cambridge, the housing market is really overvalued, so it makes sense to try and get on the property ladder as quickly as possible, as it will reduce your monthly outgoings substantially.To rent a house like ours would cost us over £1200 per month, whereas our mortgage is about £600. Plus, we have let out rooms on and off over the last few years.

    Cheers

    1. M,

      Wow, that’s a huge difference between rent price and mortgage payments. I can imagine why you wanted to get on the ownership bandwagon as soon as possible! Here it’s exactly the other way around: renting is much cheaper than taking out a mortgage. How long does your mortgage run and is it a fixed interest one or not?

      You got one of the underlying reasons why I’ll continue to rent right: building my dividend income. By dramatically decreasing my monthly cash flow, I’ll also cut into future dividend income, which will seriously hamper my progress towards financial independence. I’d rather build a large monthly income before taking the plunge and take out a mortgage. That way the mortgage payments won’t be too much and I’ll be able to save a decent chunk of change every month.

      Best wishes,
      NMW

    1. Evan,

      Ha, I think no one has ever left a comment this clearcut on my blog. I’m sorry you hate owning your home.

      I’ll definitely check out your post!

      Cheers,
      NMW

  9. I too prefer renting, you nailed it when you stated “Geographical independence, less time spent on home maintenance, and less financial risk are only three of the many advantages of renting”

    I don’t plan on staying in one place once I reached FI, I hate the head ache that comes with home ownership/ being a land lord, and the risk is present. But we never know, the mrs is wanting a home we could call ours so it is a dilemma I am facing right now, and I dont blame her either, there is definitely advantages on owning your home. Hopefully this thing we solved. Thanks for amazing post my friend!

    1. FFF,

      If you’re looking to wander the earth after hitting FI, home ownership might nog be the best option indeed. Of course, you can always rent out your home while you’re out and about. I can imagine that not being for everyone though.

      I hope you and Mrs. FFF find a solution that works for both of you. Maybe wait until a downmarket and scoop up a cheap home then?

      Thank you for the kind words!

      Best of luck in your decision,
      NMW

  10. In my opinion, every case is different, the personal situation, the professional expectations.. and also the financial conditions.

    In Spain the great majority preffer own, but because the mobility is really limited.

    Probably in big cities is better own, because the demand is not going to fall

    Anyway, good point to consider

    1. Finanzasmania,

      Thank you from chiming in all the way from Spain! The funny thing is that many Belgians continue to buy second properties over there because they are so cheap and because they want to have a vacation house abroad. How do you feel about the pricing of Spanish property?

      I think you’re right that housing in larger cities is more price resilient, but the truth is that you already pay a premium when you purchase your home. Location is everything for real estate!

      Cheers,
      NMW

      1. Most people thinks that prices are at the lower level and that won’t decrease more or even that they are going to increase. They tought that too 4 years ago and I argued with several friends but they didn’t heared me and bought houses. They continue not hearing me, and trusting TV and real-estate agencies.

        Houses are yet very overrated, but now the price is decreasing slower and even more slower since the Euribor is so low, so mortgage fee is low now and people don’t think about what will happen when Euribor increase in a few years….

        More important data:
        1-We have low natality, lower than mortality.
        2- In Europe there were in 2014 11 million of vacant houses. 3,4 million of them in Spain wich es the 13,7% of houses builded in Spain and our population is 46,4 million. And there are lot of stopped constructions and others continuing.
        3- Salary evolution vs house price says house are overrated yet:

        Evolution of time (in years) of brute salary for paying a house in Spain:
        http://www.idealista.com/news/archivos/news/images/esfuerzo-financiero-comprar-casa-salario-anual.png

        PD: I just suscribed arrived to your blog today and I am going to suscribe by RSS. It’s great 😉

        1. Javier,

          Thank you for subscribing, much appreciated!

          Housing prices are difficult too predict. Many people in Belgium voice the same concerns as you and have been doing so for the past ten years. Yet, housing prices have gone up by massive amounts over that time frame.

          Just like with stocks I don’t like to make guesses on future prospects, so many people don’t take the financial aspect into account and focus on the mental sustenance that they own their own home – as long as they’re not indebted to the bank, of course.

          Besides, it’s the only way to get most people to save, so for them acquiring a home isn’t too bad.

          Cheers and thank you for leaving a comment,
          NMW

  11. Hi Dm,

    It al depends on your personal situation. I did buy a penthouse since it cost me less than renting. I did put 30% down + the taxes so I managed to get a really low interest rate. And I bought it in 2013 so I have the old tax advantage. In my case the goverment is paying the interest and I’m paying the capital. Which is not a bad scenario.

    It is only one bedroom but I could rent it out at a higher price then my loan so no problem here. Sooner or later my current home will be turned into another income source.

    The only painfull part ( for me) was withdrawing so much money. But I’m still ahead of the average Belgian.

    I think you would have a different picture if you lived in a smaller city. Brussels is quitte expensive to aquire some real estate.

    Cheers,
    G

    1. Geblin,

      If you meant Dividend Mantra by DM I’ll take that as a huge compliment! 😉

      Pretty awesome that you’re basically enjoying a rent-free loan due to the old tax advantages of the federal government. I wish they were still around so I could enjoy them too, although I’m a big proponent to get rid of the tax breaks entirely. They’re distorting the market too much and aren’t socially just in my opinion as they’re more beneficial to high income earners.

      I can imagine it was painful to withdraw such a large amount of cash and put it into a single property rather than in a bunch of income building stocks. I’ll probably continue to do the latter to build my income more quickly.

      Smaller cities are less expensive, but I prefer large cities and good public transport. Also, Brussels is relatively cheap to where I’m currently looking. The housing prices in Leuven are through the roof. And the apartments are tiny compared to Brussels or even Ghent. The cheapest city to live in by far is Antwerp.

      Cheers,
      NMW

      1. Whoops, my mistake. I just visited the site of DM so I probably missed the names up. Most big cities are pretty expensive in Belgium. I live in a coastal city with a train station so the public transport is decent.

        Cheers,
        Geblin

        1. No problem, buddy!

          Are you sure living in a coastal city is such a good idea after one of the plans of the Flemmish government to combat the rising sea level? 😉 If you’re living in either Knokke, Blankenberge or Oostende you’ll have pretty decent inland train access, but otherwise I’d prefer living closer to the country’s center: Leuven, Ghent, Mechelen or even Antwerp.

          Best wishes,
          NMW

  12. We own our place and it was the correct decision for us after some calculations and determining what we need vs want. The whole rent vs own argument really depends on each individual’s scenarios. While free cash flow is important, it’s also nice to know you own a property and have a roof over your head. Renting can be problematic if you need to move every year because you can’t secure a long term rental contract.

    1. Tawcan,

      Absolutely! The buy versus rent discussion is the reason why it’s called personal finance and not just finance. Everyone has other wants and needs, which result in a different outcome.

      With you and the misses having to take care of Baby T I can imagine you enjoy the comfort and security of your own home more than a rental home. And it’s nice for the children to grow up in a house they can truly call home.

      Cheers,
      NMW

  13. Hey NMW,

    I agree with other some commenters statements that “it all depends”. However, you are the poster child of why young people probably should rent rather than buy. When you can keep your accommodation small and thereby also the rent/utility bill, you can save considerably more and increase your wealth. For financial retirement/independence, this is the most important thing you can do (and wisely invest obviously).

    What most people tend to forget is that home ownership is generally expensive (location dependent obviously), why? Couple reasons: the equity in your home is locked (usually), so does not function as an asset and thus does not make money (granted you can be lucky and get some good capital gains in the long run, but this requires you to see your house as an asset and not a home).

    Maintenance is a tricky one, with older homes appliances fail, bathrooms need updating every 20-25 years or so, roof maintenance/repairs/replacements, surprise leaks, moisture problems (think mold), heating unit maintenance and replacement, inside/outside painting, etc. These things can run in the thousands and can hit you unexpectedly. We currently own three properties, including some old ones, so we know what were talking about. To give you some indication, for our rental properties (built 1910) the estimated maintenance cost is about 20% of the yearly gross revenue (and the return is still worth it!).

    Will be doing a post for our situation about why we are going back to renting, at least in the short term, and why it makes financial sense for us (keep in mind that we will downsize).

    I think that home ownership is also something sentimental, from personal experience this usually means its a money drain. At the end of the day, one should do what they feel is in their best interest (either emotional or financial).

    Great post!

    1. Mr. FSF,

      After reading all the things that can go wrong with home ownership and the expenses that brings about I’m happy to be a renter rather than an owner. I guess that shows my inherently lazy nature! 🙂

      You’re right about “it all depends”. Everyone’s situation differs and thus requires a different solution. To some people buying makes so much sense that it would be a crime to rent any longer than necessary, whereas others like myself want to build extra income first before locking a large part of your net worth down in a single “thing” (I won’t call it an investment even though a lot of people see it that way).

      Looking forward to your future post and the reasoning behind going back to renting!

      Cheers,
      NMW

  14. It’s a huge long-term commitment to buy a home, and it sounds like renting makes sense for you at the moment NMW. But for me, with a young family, I just couldn’t imagine renting, and couldn’t be happier with the home we have now which we expect to be in ‘forever’, and we just love the area we live in. Certainly makes those big mortgage payments much easier to bear!

    I’m sure when the time is right one day you’ll take the plunge, but you’re definitely doing you homework, so good luck with whatever path you choose from here!

    Cheers,

    Jason

    1. Jason,

      I read your post (or very long comment?) last year in which you explained the financial impact of the home you purchased. A long-term commitment is the least you could say about your decision to buy, but I absolutely understand why you went for it.

      It’s very easy for me to say things like “renting is awesome because x, y and z” because I don’t have anyone else that depends on me. It’s just me and my thoughts. If you have children though, the equation changes. I’d prefer my own home in a nice neighbourhood too if I had any children.

      Glad to hear you still enjoy your new place!

      Until the day I find a suitable place that I can afford I’ll patiently wait and scour the real estate market.

      Cheers,
      NMW

  15. Ah, the ol’ owning vs. renting debate!

    I’ve seen sooo many unnecessarily heated arguments online on this subject, it’s as if people MUST spew vicious vitriol at one another instead of having a calm and rational discussion! The DGI community is one of the best online groups I’ve ever come across though, so I definitely think it is an interesting topic to explore.

    I’m personally thinking of buying a home within the next few months, as the housing market and cost of living in general is very inexpensive here in Idaho, haha. I’ve run the numbers and spoken to a lot of friends, and I could actually get a cheaper mortgage for a bigger place than what I’m currently paying for the apartment I rent, so home ownership definitely makes sense for me.

    That being said, I don’t think there’s a true right or wrong answer when it comes to owning vs. renting, because, as with most things in life, it depends on one’s situation, and given everything you’ve explained in this post, I can totally understand why renting would be more advantageous for you, at least for the time being.

    Very interesting post!

    Cheers

    P.S. every time I visit your blog I start craving waffles 😛

    1. Alex,

      Let’s hope no one decides to start a heated debate over here and bashes other people’s views because that’s not necessary. Opinions differ and there’s no single right answer to the rent or buy debate! It’s what I like the most about our community too: everyone voices their opinion with rational arguments and without breaking down others.

      If you could get a mortgage that’s cheaper than your current rent I don’t see an immediate reason why you wouldn’t want to won your own home, unless home maintenance would be too expensive. Maybe I should move to Idaho too and enjoy some of that cheap real estate? 😉

      Glad to hear you agree with the reasoning above and why it fits my situation perfectly. The wealth of arguments pro and con in the comment section is quite incredible if you think about it. I’ve learned more in the past 24 hours from a bunch of people online than from friends I see almost every week.

      Also, sorry not sorry for making you crave waffles! That comes with the territory! 😀

      Best regards,
      NMW

  16. The time you get back from not having to maintain a home plus the money back from not maintaining a home is definitely a plus for you. Now in my case the cost of a home large enough to fit my ever growing family would be more than my current mortgage + taxes + maintenance. So for me at this stage in my life a home is best. Every scenario/person is different.

    1. DFG,

      Absolutely! If I had a family as large as yours depending on me I would never consider renting as a short-term solution, let alone a long-term one. This is just another great example why there’s no one-size-fits-all answer to this debate.

      Cheers,
      NMW

  17. We own our place. Well technically the bank currently owns more than we do 😉 But we find that there is a certain pride of ownership that comes with owning your own place. We have a small house and I love to do little projects. We redid our patio, our kitchen, our living/dining room etc. Its fun and its nice to enjoy a personalized living space.

    1. Thomas,

      Ha, I’m glad you at least acknowledge that the bank still owns the larger part of your home. Many people tend to forget that! 🙂

      With that being said, you seem like the kind of person that loves to tinker and roll up his sleeves to make your home more to your liking. So it makes a lot of sense that you are a home owner. There’s no reason to improve your home on account of someone else, right?

      Thank you for dropping by and chiming in,
      NMW

  18. Hi NMW,

    I think so many times that people just want the single “right” answer but as many have noted above, it all depends, both on personal values and also on how much it costs in a particular region. Here in the US it’s my impression that the typical rent payment is not much lower than a mortgage payment, so then buying is certainly something to consider in the US if you know you wouldn’t be moving for at least 5 years.

    Does the value you listed for the monthly mortgage include home insurance and property taxes (assuming you have them in Belgium) – they can be fairly significant yearly costs that are not needed when renting.

    Inflation also has different results – when owning (assuming a fixed rate mortgage), it’ll work in your favor and lower your monthly payments over time. When renting, let’s just say every apartment I rented increased the rent every year over and above inflation…

    I estimated my cost of home ownership after selling my house last year. I think I came out ahead vs. renting over the 10-year period, even though I sold the house at a loss. It was stressful selling the house and not something I’d look forward to.

    I think you’re doing the right thing and evaluating the options objectively. Is cash now more valuable than cash later? In your case it looks like it’s better now. It’s certainly wise to make sure you have enough money to purchase as there can be many unexpected expenses in the first year.

    Best wishes!
    -DL

    1. DL,

      There’s no doubt that a one-size-fits-all answer to this question doesn’t exist. Situations between people are wildly different: income, age, family situation, location, and job security all play a significant role in whether it’s better to buy or rent a home.

      When rent isn’t much lower than your average mortgage it makes a lot of sense to purchase a home if you’re going to stay for extended periods of time. In Belgium the rent and purchase price of apartments fluctuates a lot between cities, but overall I think it’s best for most people that they become a home owner as soon as possible, if only to build some equity.

      With my very low rent every month – thank you roommate – it just doesn’t make sense from a financial perspective to buy a home. I’m furthermore unsure what my personal life will be like in a couple of years, so renting gives me enough flexibility to go whichever way life throws at me.

      For my calculations I didn’t consider tax payments and maintenance all that much because they’re rather uncertain. Overall though, I think ownership taxes are relatively low in Belgium and they’ll certainly be offset by the tax benefits you get by purchasing your own home.

      What strikes me about US home prices, yours too, is how low they are compared to your average gross income. $135,000 would be an absolute steal in many parts of Belgium, especially when you consider that your house is much larger and the land is probably much bigger. When considering that the average after tax income from a single earner is about €25,000 and with home prices at €225,000 on average throughout the country, you can see why I always say that housing is expensive over here.

      Cheers,
      NMW

  19. If you are planning to stay single and have no kids in the next 15-20 years the calculation makes a lot of sense. On the other hand most people have kids and marry so renting 1 room of the property or sharing the rent with somebody is only a temporary “income”. Once you start a family there is a need of an extra 1-2 rooms and kids are too young to pay rent 🙂

    1. mrmr,

      The calculation above was indeed made from the perspective of me remaining single and being able to rent out the spare room to someone else. At the moment there’s no family, let alone children, in sight, so that’s why I calculated things the way I did.

      When you get married it’ll be much easier to purchase a home as it’s likely that you’ll bump your household income significantly (times two potentially). On top of that, you’ll receive much larger tax benefits if you have children. That way things even out.

      Thanks for dropping by,
      NMW

  20. Don’t forget the power of leverage, though! If you purchase a house with 20% down and its value increases by 3% per year, your return on investment is 15% per year (excluding expenses). So your down payment, in a way, still is earning money for you.

    Of course, if your market is highly priced already and the only way to go is down, leverage isn’t the best thing. Best of luck!

    1. Professor,

      I understand the basic idea behind your reasoning, but could you explain how a 3% home price increase every year with 20% down amounts to 15% annually?

      Estimating the price of houses and apartments in Belgium is really difficult. Over the past fifty years prices have never gone down, so everyone believes they’ll continue to do so for eternity. I’ve been thinking that a market correction must be in the books for five years now, but nothing has happened yet. As such, it’s hard to tell if it’s best to take out a mortgage now or in a couple of years.

      Cheers,
      NMW

  21. Similar conclusion for the next 7 years (although this is Australia-based market) from the article linked below.
    It has a nice overview comparing investment returns versus property returns, showing at which rates of both it – supposedly – makes sense to do either or.

    http://blog.stockspot.com.au/rent-or-buy-we-do-the-sums/?utm_source=dianomi&utm_medium=cpc&utm_campaign=buy-vs-rent

    Personally I prefer renting: apartment of house can grow directly with my personal family needs so no need to already start buying a large property whilst my family is still small at the moment, flexibility of moving and migrating around the world (which we do every 2-3 years) at – figuratively speaking – a moment’s notice so nothing tying us down, and deducing rental costs from the returns on investment at the moment I still come out ahead.
    I don’t think the housing market rises at the same rates as the MSCI World, although that can be my misconception or shortsightedness..

    PS: I’m a Dutch/Belgian living in Australia, so know both those markets.. vaguely.. 😉

    PPS: I’m not exactly sure I understand the concept of this ‘leverage of a deposit’ mentioned in a few comments. Can someone elaborate?

    1. Ruben,

      Thank you for sharing that article! Very detailed write-up on when buying or renting is the better option with a lot of well-founded arguments.

      If you’re moving every two to three years, I can imagine that you prefer renting. The hassle of buying a home, taking out a mortgage, then trying to sell it again after a couple of months in and of itself would be too much.

      The housing market rises by about 2-3% per year on average here in Belgium, but has seen a major boom between 2000 and 2010. The past couple of years the growth has been much slower at about 1% on average. That’s very low compared to the returns you’ll get in the market over the long run.

      I didn’t understand Professor’s leverage comment either, but it’s actually explained in the post you linked:

      “For instance, it’s typical to contribute a 20% deposit and the bank mortgage covers the remaining 80%, or an 80% Loan to Value Ratio (LVR). Let’s say you buy a property for $500,000 with a deposit of $100,000 and borrow the remaining $400,000. If you sell the property a year later for $550,000, the property itself has risen 10% in value but your return on investment is 50% since you have made $50,000 profit on a $100,000 investment (i.e. the original deposit). That’s 5x leverage because you earned a 5x 10% return.”

      Of course this is the case when you sell your home rather than continue to live in it.

      Best wishes and thank you for taking the time to leave a comment,
      NMW

      1. Ahh. Now I understand the term leverage as well.

        Essentially I think it is the same principle as using the “Turbos”, “Speeders” or “Sprinters”, whereby you basically take out a loan (but at what rate..??) from the bank to purchase a position of shares and you contribute a certain percentage. If the stock rises in value and you sell; you get leveraged more percentage profit, whilst you pay back the loan to the bank..

        1. I don’t think of myself as ‘market genius’ or do I like speculating, so I tend to find these things ‘dangerous’ as your owing: it’s nice if things go well, but rather not nice of things pan out bad..

          It’s funny how most people can relate to the ‘dangers of the stock market’ and thus stay away from it, but on the other hand don’t worry one bit when they invest many times more in some house using the exact same logic (ie. investing with leverage whilst owing)..!

          1. Ruben,

            Those type of products aren’t for me either. Of course, if you’re looking to buy a home it makes sense to take out a mortgage. Not a lot of people can plunk down enough cash to buy a house outright.

            What I always find fascinating is how people find it dangerous to put your money in a lot of stocks while it’s totally sane to put all your equity in one single home. The latter is much more risky in my opinion, but that’s probably just me! 🙂

            Cheers,
            NMW

  22. Hi NMW!

    I have always believed in owning your own home since the start. I don’t believe in renting at first but over the last year I can definitely see benefits to renting. As long as the investments generate positive cash flow, I wouldn’t mind renting for my own living. But in every case, I don’t see myself renting for the long term though.

    1. Jeff,

      Ownership and renting both have their up- and downsides. To me renting makes a ton of sense from a financial perspective. If my investments continue to perform above the annual increase of real estate I’ll be better off in the long-run.

      Furthermore, to many people immediately purchasing a home just isn’t an option. When you have to put 20% down on real astate worth €250,000 and you only earn €25,000 after taxes (Belgium’s average income) it’ll take you a long time to save up for the downpayment, let alone the transactions costs and fees which amount to another 10% of the property’s value.

      Cheers!
      NMW

  23. Renting here the same apartment of which I own with mortgage would cost me about 800 euro’s for rent + servicecosts of about 130 euro’s. 930 total a month + extra like utilities etc

    As I bought the apartment with mortgage of about 100.000 euro’s near Utrecht i am on 500 bruto euro’s of mortgage and as we get part of the interest back from the government each month my monthly mortgage cost will slowly go from 350 netto towards 500 euro’s in 30 years time. At the moment i am paying 350 + 130 servicecosts = 480 a month +extra’s like utilities etc

    Different country different rules 🙂 Buying here is cheaper then renting, also one thing to note is that with the buying u have more houses/apartments to choose from compared to renting not much to rent over here.

    1. William,

      Pretty impressive that buying a house is so much cheaper than renting over there! Your mortgage payments are lower than rent and after x amount of years you’ll own your home outright, pretty sweet deal. 😉

      You make a good point that there’s more apartments or houses to choose from if you’re looking to buy. That’s not the case for the city I currently live in, but it applies to most other towns and cities. This also relates to your first remark, namely that renting is more expensive because there’s less rentals on offer (supply and demand).

      Thank you for chiming in!
      NMW

  24. Interesting points NMW!

    The great thing for you is that time is very much on your side. Since you are young and your current rent is so affordable you can afford to wait for a drop in housing prices.

    1. Noonan,

      I believe I’ll be waiting for a long time, but you’re absolutely right. There’s no rush as long as I find a way to keep my rent payments low and save a large percentage of my paycheck.

      Cheers,
      NMW

  25. I’m torn on this issue. I think it has to do a lot with how long you plan to stay some place. Generally if you know you’re going to stay over 6 years I think it’s probably better to buy. But then again, I only know the housing market where I live.

    One thing you didn’t really account for in your scenario, is that renting a room to your roommate if you bought a house you will increase rent over time. I’ve owned my house for 8 years now and my 2 roommates cover about 80% of my mortgage/hoa/property tax payments. Leaving me to only have to cover the remaining 20% which is quite a deal for me. I expect to see that lower even more the longer I keep living where I am.

    The first few years of home ownership my portion I spent on housing was a bit more than my roommates but it evened out and now Moving anywhere or renting will cost me sooo much more that I am having a hard time considering moving anymore. Seeing the my personal monthly costs of housing more than triple by moving anywhere is difficult to swallow.

    1. Zee,

      Thank you for chiming in as I always enjoy hearing your perspective on things.

      If you’re planning to stay somewhere for longer periods of time buying a place often is the way to go, unless acquiring a property simply is too expensive. That’s sort of the case for me right now with housing prices in Belgium being at least ten times my annual net income.

      You’re right that I didn’t account for increased rent payments over time, but that’s because I left out inflation entirely. I did that because rent increases are strictly regulated in Belgium. As such, bumping up the rent is in almost all cases restricted to yearly inflation levels. Another thing I didn’t account for was higher salary over time, higher property taxes, etc. because all of these things are very hard to predict.

      All in all, I believe you’ve got a pretty awesome set-up going yourself. If you have to cover only 20% of the costs for your own home that’s one of the best deals I’ve ever heard of. Your roommates are basically paying off the your mortgage!

      Cheers,
      NMW

  26. Why do you consider rent to be an investment, as it is an expense and thus has no influence in your net-worth?

    1. BankNote,

      I’m sorry of things were unclear in my post, but I would never consider renting an investment. It’s a monthly expense that has no influence whatsoever on your net worth, like you said.

      The benefit of renting – to me at least – is that I can save a higher percentage of my paycheck, relatively speaking of course. This in turn builds my net worth faster.

      Hope I cleared things up?

      Thank you for dropping by,
      NMW

  27. I congratulate you to your opinion that renting is better. We bought a few years ago (and we “needed” more space because of our kids). We like our house and things are okay, but in general I do think (now!) renting is better. Of course, it always depends on the exact situation. But usually you move bigger when you buy, so the monthly costs rise (utilities etc.) as well. And a house is much more work than a flat.

    1. Eurfi,

      Every situation is different, of course. The comments above show that for some people buying a home worked out better both from a personal and a financial perspective.

      Even though you now think that renting is a better option, you’re still happy with your house. As such, there’s no reason to move and start renting again.

      Cheers,
      NMW

  28. If you’re savings rate is high like yours and you don’t mind losing 50% on the stock market (for greater returns), I think renting is the way to go. If your’re like the average Belgian in their 20’s who nearly spends it all, get a big ass loan. And live in hope that you’re wife and children don’t leave you or you’re double F’d. More like triple, mmmmm triple. The bank, gouvernement and alimony smiles to you.
    Anyway from an investment standpoint there’s only one big pro for Belgian (ugly) houses, building space is getting limited.
    I’m wondering what the consequences could be with long deflation in the western world for housing. With the actions of central banks in unknown territory, I like to be prepared for a case like japan.

  29. Good analyses, but there are 2 elements that I would like to add:
    1. portfolio diversification. Buying a house is investing in real estate.On the other hand, you are buying one single house, that’s like investing in stocks and only buying one stock.

    2. But the big elephant in the room is the fiscal stimulans where you can deduct part of the interest. And this one throws your whole calculation out of whack, and is the sole reason why property ownership is not as bad as it seems.

    1. 1- Buying a house for renting it to others is investing in real estate, but buying a house for living at it, it’s not investing, is a expense.

      2- Here in Basque country we have fiscal deductions for buying a house for living, but we also have them for renting a house for living, and the one for renting is higher.

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