Buying Vs Renting

It's not uncommon to see people around us struggling between renting and buying their own home. Indeed, there are many advantages to buying a home versus renting one. View these advantages in the Buy vs. Rent Comparison Chart.

Buy vs. Rent Comparison Chart

Why Buying a Home is a Good Idea? Drawbacks to Buying a Home:
A very safe investment: As a fairly general rule, homes appreciate about 4 to 5 percent a year. Some years will be more, some less. The figure of course varies from neighborhood to neighborhood. Opportunity Cost: You're no longer able to invest your down payment or monthly equity payments into other markets. Your money is tied to your house.
Property builds equity: In Hong Kong, the most common way to accumulate wealth is through homeownership. Very often, homeowners have "unrealized wealth" in their properties, which means their properties are worth more than what they owe on them. This is also called "Equity Savings". They own assets that appreciate in value. The most common way to realize this "unrealized wealth" is to refinance or sell the properties. Some owners who sell their properties use some of profit to buy a bigger, better, or newer home. Loss of equity: When the home value goes down, so does your equity. Your equity also loses value when the value of dollar declines.
Free to customize your own home: You can do whatever you want that makes your home a comfortable place for you and your family. It's your home, not a temporary place to sleep and eat. Additional Monthly Expenses: Homeowners are responsible for 1) Property Taxes e.g. government rate; 2) Home/Hazard Insurance; 3) Utilities; 4) Maintenance; 5) Membership Fee e.g. Club House Facilities
Sense of belonging, community, stability, and security: Everything belongs to you! Less Mobility: It takes longer time to move if you need to sell your house at a desirable value.
Stable Monthly Housing Costs: If you get a fixed rate mortgage, you have the same monthly payment amount for thirty years. Even if you get an adjustable rate mortgage, your payment will stay within a certain range.  
Forced Savings: It is often challenging for some people with the desire to spend money to save money. A house is an automatic savings account. This "equity savings" may even appreciate.  

Why Renting a Home is a Good Idea? Drawbacks to Renting a Home:
Money Up-front: If you are an entrepreneur or investor who is able to take a sum of money and make more money out of it, you have to consider the opportunity cost of having your money locked up in your house. Renting does not accumulate wealth: you are just throwing money away.
Ease of Moving: You can move whenever and whatever you feel like. Let's say, you move for a lower rental, nicer environment, and better Fung Shui. Possibility of eviction: Owners may terminate the tenancy agreement with you for their own sake, e.g. selling the property.
Little or no responsibility for maintenance: Tenants are usually not responsible for any building maintenance. Changes limited: As a renter, you are limited on what changes you can make to your living quarters.
  No control over rent increases: The rental is set at the owner's sole discretion. You are forced to move or to pay higher rent when one contract is over.
  No tax benefits (if any)

Reasons to Delay Buying a Home

Even if you have the financial resources for the down payment and monthly installments and have the desire to eventually own your own home, there are sound reasons to delay buying a home:

1. New to the Area: If you have just moved to an unfamiliar area, it makes sense to rent for a number of months before deciding on exactly where you want to live.

2. Uncertain Job Future: You'd better think twice when you are right out of school or expecting a promotion or a transfer, or when your company has announced an impending restructuring. It will be the time to buy when you have a more accurate picture of what your next few years will be like.

3. Marital Problems: When your family is in turmoil, never think that buying a new home may help resolve your problems. You will probably create an additional financial burden to your difficult situation when you are forced to sell your recently bought property before it appreciates due to divorce.

4. If you have to re-sell it quickly: You should avoid buying a property when you are not able to give enough time for the appreciation to exceed the accrued expenses e.g. closing cost and commissions.

The decision to buy or rent a home could be a headache for many of us, especially for the first-time buyers. Our Buy vs. Rent Calculator may help measure the advantages and considerations of owning vs. renting a home.

Disclaimer: The calculated results are intended for illustrative purposes only and accuracy is not guaranteed. Be sure to consult a financial professional prior to using and relying on the results.

Along the decision-making process, you may also encounter other factors affecting the choice of buying a home.

1. Recession and Expansion: There are times when the economy is brisk and everyone feels confident of future. It encourages people to spend money on luxury items including houses. However, when economy slows down to the phase of recession, fewer people buy homes because both income and job are unsecured. Even so, some homeowners find themselves in a situation where they must sell their homes due to a layoff in their family.

2. Supply and Demand: In the business cycle of property market, there are buyers'markets during economic recession and sellers'markets during economic expansion. It is all based on supply and/or demand. During sellers'markets, people rush to buy homes. Homes are sold quickly and sellers have a lot of pricing power. As a result, prices rise rapidly. On the contrary, during buyers'markets, homes may sit on the market for a while because people are cautious with money. Sellers especially for those who are not so safe from income become more flexible and may even drop their prices. Then, buyers have a lot of bargaining power.

3. Time your Purchase to the Market Cycle: Buyers always wish to buy home at the lowest price and try to time their purchase to take advantage of buyers'markets in the cycle. This attempt is quite tricky because even experts have problem accurately predicting the future economy. The cycle is influenced by interest rates, employment rate, income level, and consumer outlook for the future, etc. That's why it is difficult to know in advance whether the property market is going to boom or bust. Adopting "buy and hold" strategy by expecting to keep a home for at least 7 years or more seems more sensible.

4. Should you Wait to Purchase a Home? : Homeowners who need to sell their homes to come up with a down payment for their next home are called move-up buyers. If you are a move-up buyer and want to purchase your next home during a depressed market, you generally have to sell your current home during the same depressed market. If you want to sell during a boom, then you probably also have to purchase during the same boom. It tends to equal out! There is no point to wait. If you are a first-time buyer or a move-up buyer having sold your current home and are waiting for the end of a boom, are you going to wait…and wait…and wait…till the next depressed market? How long could it be? Again, nobody knows.