Rent or buy? That depends on the ten-year plan

Buy or rent

Rent or buy? That depends on the ten-year plan

Only those who are sure of their place of residence should buy a property. Because renting out a single apartment is usually a losing proposition, says investment expert Bernadette Redl

Where do you see yourself in ten years? All those who want to buy a property to live in themselves should be able to answer this question as if shot out of a pistol: “Here and nowhere else” would be the right answer.

After all, anyone who buys a house or apartment should live in it themselves for at least ten years. Renting it out before that time is up, for example because you have to move to another city for work, fall in love abroad or unexpectedly have twins or a third child and therefore need more space, tends to turn into a losing proposition. So says German investment banker and author of the book “Buy or Rent?” Gerd Kommer

Two identical apartments, one bought, the other rented: If the tenant invests well, they could end up getting out better than a buyer?

“Real estate is called that because it makes the person who owns it immobile,” he says, pointing to studies from the U.S.. According to whic, female tenants are much better able to cope with unemployment, for example, because their housing situation makes them more flexible and quicker to find another job for which they might have to move.

Stable income

So when is it worth buying? As a rule of thumb, the expert says that a loan should be paid off no later than two or three years before retirement. One should always also ask oneself whether one’s own income will be stable in the long term. After all, the loan installment must still be repaid monthly in future years.

On average, says Kommer, renting is usually somewhat cheaper than buying – assuming two identical apartments in a fictitious example – because insurance and maintenance costs are incurred by the buyer in addition to the monthly loan installment.

Who does not put their own money into an dwelling, but invests elsewhere?  For instance in funds, and the saving, because one rents and not bought a property.  Invests monthly elsewhere, gets out better at the end, believes Kommer. He advises, for example, to invest 60 percent of the monthly savings in an ETF, such as the MSCI World, and 40 percent in a money account at the bank.

Renting costly

If you are planning to buy an apartment but already know that you will probably have to rent it out in five years, you should think twice. After all, becoming the landlord of a single apartment involves a lot of effort and expense: for the real estate agent, for example, or for any repairs that need to be made. In addition, there are the ancillary costs of the purchase, such as for the real estate agent or the entry in the land register – on average, these are around ten percent of the purchase price in Austria.

Kommer clarifies that a large increase in value is also no longer to be expected now. “The last twelve, 13 years have been an extremely positive outlier – that’s as clear as mud.” In the near future, he says, such high returns can no longer be expected.

Calculate yourself

Many want to buy property because of the hassle of paying monthly rent, “for which you get nothing in the end.” Instead, they say, you can pay off a loan after all and be a property owner at some point at the same time.

Anyone can calculate for themselves whether this actually works out. How high is the current rent? How much would a loan cost? Incidental costs or reserves for repairs, which inevitably arise in a property at some point, must not be forgotten. Kommer warns against ready-made buy-or-rent calculators on the Internet. These are often provided by credit institutions, and the results are therefore frequently biased towards buying. Above all, the maintenance costs of a property are usually set far too low, as Kommer knows.

Who am I?

Anyone considering buying a property should first ask themselves: Who am I? What do I want? But also, and this is often underestimated according to Kommer: Do I have two left hands? Anyone who would describe themselves as a tinkerer is on the safe side. But if you have trouble operating a saw or a drill, you might want to stick to renting. After all, if you have to hire a professional for every job – assuming you can even find one for minor repairs – it’s going to cost you a lot of money in the long run.

In the end, it’s probably the feeling that decides for most people – especially on the question of whether you can still sleep well at night if you’re in debt for many years. (Bernadette Redl, 18.3.2023)

Source – Der Standard – translated from the German

Photo – Pixabay

Translate »