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Should I Buy or Rent My Home?
 
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Should I Buy or Rent My Home?
Posted Date: Jun 01, 2009
By: Chan Ai Cheng
Let us explore the basic principles of the upsides and downsides of both options.

Why Rent?

When time is of the essence
Renting is the ideal option when you need a place fast. This is because the process of renting a property is way faster than the process of buying one - a rental transaction can be done in just a day or two!  Besides that, you have a choice of deciding on the length of stay that best suit your needs. You can opt for a length of stay of a year or two, or even as short as a tenure on a month by month basis. What’s even more attractive for those who are in a hurry is that you have the option to rent a place that comes fully furnished – just bring your bags in! There is, of course, a slight premium that you will need to pay for a fully furnished place. That said, in situations where time is of the essence, you may not have the luxury of time nor the upfront resources or even the necessary contacts of service providers to furnish a place to a move in condition that quickly.

Renting keeps you flexible
Renting is also the ideal option for those who are uncertain of their period of stay. For example, if you are a single graduate from out of town moving into the city for your first job, you may not be too familiar with the new locality. Furthermore, there are uncertainties on the confirmation of your employment.  In this case, it is usually more advisable to rent. This gives you the flexibility to move should you not like the area where you’re currently renting or move to a location closer to a new work location should the need arise. When you rent, you can pick up and move almost whenever you want, with very little penalty, or maybe with just an early termination fee as according to the tenancy agreement. It is not as complicated as selling your home and moving as the selling process can take some time. You lose a lot of flexibility when you ‘put down your roots’ by buying a home. When you want to look for a new job, you’re restricted to looking for one in the geographic area around your home. If you ever get a job offer in another area, you have to go through the hassle of selling your home before you can even take advantage of it. If you rent, you could just end your tenancy, hire movers and just go.

Less upfront cost compared to buying
When you rent a place, the landlord will require some upfront money upon execution of the Tenancy Agreement, usually broken down into the following:

Security Deposit              
Two to three months rent (which is refundable at the end of the tenancy)

Advance Rental                               
One month rent

Utility Deposit                  
Half month to one month rent

Which means that should the rental be RM2,000 for the unit, then your total upfront amount payable to the landlord is between RM7,000 to RM10,000. The other expenses that you will need to pay are for utilities like water, electricity and other services like Astro and broadband. As the tenant, the rental in most instances includes the maintenance fees of the property. You are also free to negotiate with the landlord on what is to be included in the rent and what shouldn’t be. This is the standard practice.

Someone else does the repairs
Renting relieves you of the risk and headache of maintaining and repairing the property structure - if a pipe bursts, or if there’s a leakage in the roof or the odd electrical wiring matters. These are usually not your responsibility which is a good thing as repairs can come up to quite a hefty sum of money, not forgetting the hassle of getting contractors to fix them. As the tenant, you just call the landlord and in most instances, the repair works will be done within 14 to 21 days from the time of notice.

On the negative side of renting, you are open to risks that the landlord will increase the rent upon rent review when you are all happy and settled in the place. The landlord could also choose not to renew your tenancy upon expiry and you are left in a hurried state to look for a new place. Besides those, renting will never let you gain ownership of the property, which means you will have no prospects of making capital appreciation or converting the property into investment property in the future.

Why Buy?

Hedge against inflation
Property is commonly perceived to be a good hedge against inflation. You want to at least be in a position where the value of your money is maintained if not improved. Property offers protection against loss of purchasing power resulting from rising prices of goods and services to the extent that your equity increases in value at a rate of at least equal to or greater than inflation. Research has shown that property values have generally increased at a faster rate than the rate of inflation hence property has provided a hedge against the effects of inflation. This has always been the fundamental quality of owning a property.

Capital appreciation and conversion into investment property
With ownership of property comes the potential upside of capital appreciation. You stand to gain from this unlike renting where you are on the other end, having to pay increased rents with the rise of property values. Should you in the future decide to move to a different home, the existing one can be converted into an investment property that generates you cash flow from tenancies.

Pride of ownership and security
When you own the place, it’s yours. You are practically free to do what you want with it. You can hang as many pictures as you want onto the walls, renovate, paint and design the place to suit your taste. There is no worry of having to reinstate the property to its original state upon expiry of tenancy or seek any permission in writing for doing what you want to the property.  That said, owning is more of a long stay.  You need to like where you live.

Pay towards owning your own home
Either way you look at it, payments have to be made to occupy a property. It’s either rental payments or loan repayments. The big difference is that loan repayments pay towards owning the place whereas rental payments are only for the use of the place for a period of time. When the figures are just marginally different, you should consider owning instead of renting. You can check with banks, look at bank mortgage tables or use the loan calculators available on most bank websites to work out the repayment amounts.

On the downside of buying, upfront costs can be heavy.  Should you purchase a home in the secondary market, you will need a minimum of 10% of the cost of the property to execute the Sale and Purchase agreement and settle the balance 90% within 90 days which is usually by way of mortgage. Thereafter, there will be monthly commitments to the banks/financial institutions for the repayment of the mortgage. There are legal fees involved for Sale and Purchase agreements, Loan agreements, Stamp Duties, insurance, monthly payments of maintenance fees and sinking funds. 

Owning a home is really more expensive than it looks. You will also need to factor in the cost of renovation and furnishing. When you own your own home, every time something breaks, you will have to fix it. If it can’t be repaired, you have to fork over the cash to buy a new one. Moreover, you should check on the sales price trends of homes in that neighborhood. Avoid commitment if it looks like the area is declining in value - you're probably better off renting.

Rent with the option to buy

This has been increasingly more popular as it gives a tenant more security in terms of stay in the place.  Renting with the option to buy is usually incorporated in the tenancy agreement where the tenant is given the first right of refusal to buy should the landlord put the property up for sale when the tenancy is still running. In most instances, the new owner will honour the existing tenancy. However as the tenant you are open to more risk. There have been incidences where the landlord has agreed that portions of the rents can be converted into down payment toward ownership of the place by the tenant.  It all goes back to the negotiation between the landlord and the tenant.

Conclusion

Things being equal, it's almost always better to own your home rather than to rent it. This doesn't mean that everyone should be a homeowner though. If your move is short-term or if you are in need of a place in a hurry, it may be worthwhile to deal with a landlord for a while.

Common wisdom holds that in the long-term, it's always better to buy a home than to rent

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Related Categories: Looking to Rent, General

Tags: Buying Property (Malaysia), Issues and Challenges (Malaysia)




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