Dear daughter,
A question that almost everyone makes to themselves at a certain stage in their lives is should I buy or rent a house?
I want to tell you my point of view related to this question.
When you rent a house, you pay the monthly rent, and you are done. If there is any maintenance to do in the house, it is usually in the owner’s hands. Except if you just broke something and it is not the normal wear and tear.
In this situation, you just pay to have a roof under your head.
An argument that most people that prefer to buy make is that if you are renting a place, once the contract period finishes, you leave the place. You just gave your money to the owner. However, if you buy, there is a portion of the mortgage payments, the principal payment, that goes to yourself. I used this argument myself as the main reason to buy a house when I bought it.
If you don’t understand this concept, I explained to you how to calculate interest and principal payments, check it out again.
On the other hand, the main argument of the people that prefers to rent is that they have little responsibility for the place. In the end, it is not their place. They only pay for the rent. That way they don’t need to worry about wear and tear maintenance, tax and rates, building insurance, etc.
Initially, I didn’t understand all the expenses related to a house. I only see the whole picture when I started studying and reading books about how to invest in real estate.
However, I decided to buy my own house using debt. And then, I experience firsthand the extra costs of owning a house in comparison with renting.
The house I bought had an extra room, and it is a bit bigger than the one I was renting. My reasoning was this one when you buy a house is for the long term. So, better buy something that you are going to feel comfortable with for a long period.
After I move into the new house, my expenses went up a bit more than double. Yes, it wasn’t a surprise because I made the numbers before making my decision. Remember, when you want to make a financial decision, only the numbers will tell you the truth.
So, was it a good or a bad decision?
Here I’ll say it depends on your point of view.
I feel very comfortable in my new house. I have enough space and better, I own the house (or I will own it when I finish paying the mortgage).
The downside, I have a huge debt on my hands. I’m making extra payments on my mortgage so I can be out of that debt soon. But still, having that big debt can be a little discouraging.
What will I do differently next time?
If I see myself in the same situation, I’ll postpone the decision of buying a house as much as I can.
The reason is simple.
I could use the extra cash that I suppose to pay if having a mortgage, to invest it.
Once I’m comfortable with the amount of money I have invested, I’ll save at least half of the price of the house I want to buy.
Making a big down payment for a mortgage can reduce the interest you have to pay. And then, while having the mortgage, I’ll put every extra penny towards the mortgage to finish paying the mortgage early.
After experiencing the mortgage, extra payments, and not having enough invested, that is what I’ll do if I see myself in the situation of deciding whether to buy or rent a house.
Currently, I’m paying every little cent I can into the mortgage. But I don’t have enough money invested, and that makes me feel uncomfortable sometimes.
I’ll explain later, in another letter, why investments are time-sensitive. The earlier you invest the better for you. You are giving more opportunity to your investment to compound.
Also, if you decide to buy a house you should think if it is the best moment to buy a house.
Dear daughter, tell me your thoughts about this topic?
Love you, Dad.