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Calculator: Home Buy vs Rent

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Last Updated on May 24, 2021

Use this advanced calculator to help you decide whether purchasing a property is a worthwhile investment compared with renting and saving.

Is buying a home better than renting?

Understanding if a property is actually worth investing your money into is a very important step towards financial independence.

Unfortunately there is no simple answer…

It depends what you want

There are many factors that can make a big difference, for example, government schemes such as shared ownership, mortgage interest rates, property location and much much more. Luckily here is a free advanced calculator to help you make an informed decision!

Society makes us believe that buying a property is the ultimate goal, and once this has been achieved, you’ve ‘made it’. I recall a ‘what’s your ambition’ course that I was placed on at work, in which everyone had to group up and proclaim what we would consider our ‘pie in the sky’ ambition. Almost everybody put mortgage-free homeownership (apart from me as I wanted to own a Tesla at the time). Ultimately, a home is just a roof over your head, so for people like us who are aiming for financial independence, it’s important to make the right decision about home ownership vs renting as it is one of the biggest financial investments in your life and most people are losing out.

Renting Pros and Cons

Pros

  • Freedom to move home easily.
  • No need to worry about property maintenance.
  • May not need to buy furniture.
  • The simplicity of stable monthly costs.

Cons

  • You have to deal with letting agents and landlords.
  • Generally no freedom to make major changes to how you want it.
  • Usually no opportunity to sublet to recoup costs.
  • 100% of your rent is lost when you pay it.
  • You never know when rent is going to go up or you will be asked to leave.

It’s important to consider that renting is usually paid at a premium, therefore, you may not be able to save as much money each month. You also lose the opportunity to make value-adding home improvements which you will benefit from financially or rent out a room for additional income. If simplicity and flexibility is your thing, it’s probably the best way forward and you’d benefit from investing spare income elsewhere.

Property Ownership Pros and Cons

Pros

  • Full control and freedom to make whatever changes you’d like for it to be your dream home.
  • Freedom to take advantage of the Rent a Room scheme for additional income.
  • Generally, the housing market is a great investment for your money depending on location.
  • Monthly mortgage payments include paying off your loan.
  • Opportunity to make value-adding changes.

Cons

  • High upfront costs and fees.
  • Complex process and payments structure.
  • Responsibility for the whole property including maintenance.
  • You don’t have the flexibility to move easily.

Buying a property is a costly and complex process and by the end of it, you will have a huge loan to pay off which will take a lifetime, however, if you are smart and make the most of the opportunities it brings, you can turn a massive loan liability into an income-earning asset and use it to grow your net worth.

Summary

Homeownership is mostly beneficial for those who do their research and squeeze out as much additional income as they can to benefit from their investment in that asset. Owning a home is also a lot more complex and risky with much more responsibility on your shoulders compared with renting.

Renting, on the other hand, keeps things simpler with monthly payments and no responsibility for the property as well as the flexibility to move easily, however, this comes with the loss of opportunity to make the most out of your living situation for financial gain. Renting can work for you if you don’t overdo it by paying for somewhere expensive and are able to save and invest spare income.

If you are considering buying just because your friends are or your parents had by your age, consider it carefully, most of them are actually worse off! Use this calculator to understand the true value of buying.

Most importantly, you need to be happy where you live, it’;s a balance choosing a property to invest your money into because you think it’s value might go up, however, if you don’t actually like livijg there it may have a big impact on your own personal and mental health.


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