Should I rent or should I invest and buy?
A major life decision – oftentimes made when we’re at a crossroads on maintaining affordability or finding the comforts that suit our needs or changing lifestyle.
When making such life altering financial decisions, one needs to seriously consider the added financial discipline needed. Let’s face it, you already need discipline to pay rent – so ask yourself, “can I commit to paying at least 25% more of my income towards a mortgage?”
This commitment affects three aspects of your life:
- Your spending power – as you’ll have less liquid cash to spend at the end of the month,
- Your lifestyle – as you’ll be less likely to splurge and cut back on those ‘every weekend’ drinks and
- Your ability to build up substantial cash savings – as it goes right into that mortgage.
However, let’s take a look at the pros and cons of each so you can decide if renting or ownership is best for you. And a bit of advice, whichever option sounds better to you, don’t be daunted by the scarier one.
Of the two options, Guyanese custom has always been pro ownership in order to build long term wealth and renting is not seen as “an investment for yourself”. Do keep in mind that owning isn’t better than renting, nor is renting always simpler than owning – and it’s all relative to your finances and discipline.
When renting we often thank our lucky stars that we don’t have the ‘headache’ of maintenance. After all, we pay a fixed monthly rent (expenses) and someone else handles the repairs. We have the ease to pick up and move out, and in some cases, with just our clothes and a few pots and pans.
But ask yourself – “what if the Landlord wants to sell – where does that put you?” Or what if they increase the rent to more than what you’ve budgeted for?
In either instance, you need a place to live which will cost money and even though you’re not building equity (assets through home ownership) when you opt to pay the predictable expense of rent – the benefit here is that you won’t have surprise expenses that come with maintaining or improving a property such as the additional $500,000 it might take to fix a fence or beautify yard space. You’ll also need to factor in the time commitment of home repairs (improvements …and contractors, take time) as there are always areas you’d want to improve for your own comfort. The task of finding good repairmen or contractors can always seem like too much time whereas with renting – the Landlord takes care of all this – even though it may not be done as quickly as you would like.
Renters also face the challenge of finding places suitably close to work as transportation expenses can take a chunk of their income. The further away from Georgetown, the cheaper the rent. Of course, safety and security are usually another issue – depending on the area.
Home ownership benefits us two ways:
- Intangibly with feelings of stability, belonging and accomplishment and
- Tangibly through the acquisition of equity (which is your new home) and refunds such as Mortgage Interest Relief (GRA’s page can tell you more – https://www.gra.gov.gy/income-tax/application-for-mortgage-interest-relief#).
It’s not an investment for everyone if it’s not for the long term though. I’ve known persons who were close to permanent migration and invested in purchasing a home. When they were ready to sell less than a year later, there were significant costs attached (to selling) such as Capital Gains Tax and legal fees.
Overall, the costs attached to owning your own home tends to be higher than that of renting, even if your monthly mortgage payment is similar to the monthly rent, primarily due to expenses such as:
- Property Taxes
- Municipal / District Rates and Taxes
- Fire / Flood Insurance
- Creditor’s Life Insurance
- Water and Sewer services (if this was included in your previous rent agreement)
- Trash pickup services
- Repairs and Maintenance
- Pest Control
Another larger expense to consider with a mortgage is the interest. Visit our site – www.properties.gy and use the Mortgage Calculator (https://www.properties.gy/mortgage-calculator). You’ll be able to see just how much interest you’ll be paying via the Amortization Schedule or Personalized Report. Do keep in mind though, that this can be claimed back via the Mortgage Interest Relief.
Purchasing major fixer uppers – Extensive renovations can also set you back if there are unpredictable repairs needed. It’s advisable to be cautious when buying these types of properties and to conduct a valuation on the property before purchase.
Making the Decision
- Talk to your bank first.
Your Loan Officer will help you determine how much you are qualified to borrow based on your earnings. Most banks use the concept of ‘debt service’ to verify how much borrowings a customer can qualify for. In Guyana, Banks use approximately 40% of a salaried person’s income as the benchmark for debt appetite and 35% for self-employed persons. Your payment structure will also be determined, and you can compare this to your monthly rental to determine how affordable it is for your lifestyle. Different Banks offer different interest rates – shop around – after all, this is YOUR long-term investment. You need to get the best deal.
- Talk to your significant others.
Your choices are for your comfort and vision for your life. My hubby and I decided to go the ownership route because we wanted to raise our baby away from the bustle of Georgetown and I’m happy to say that with our combined salaries, it strengthened what we could afford and we enjoy the comforts of ‘country’ life.
- Talk to other Homeowners.
Wisdom comes through experience and it’s better to learn from the experiences of others than to frustrate yourself with having to go through it. I’ve learnt that despite the added expense and extra work associated with owning a home, it’s always a preferred choice. Owning a home also gives you leverage for further financing and builds your credit history – making it easier to even seek financing for other purpose including commercial purposes.
In the long run, the decision to rent or own is not just financial, it’s also emotional – so feel free to connect with us at Demerara Realty to find the property that suits your needs – be it rental or purchase.