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Is buying or renting better?

Explore the advantages and disadvantages of both renting and buying a property.

Fri, Oct 01, 2010
The Star/Asia News Network

By Chan Ai Cheng

In this article, we will explore the advantages and disadvantages of both renting and buying a property and in the process, help you decide which option will suit you best.

Why renting is better?

Time-efficient
Renting is the most logical choice when you need a place to move in immediately.

The property is already there for your choosing. True, you may have to spend some time looking at several houses before you decide on one that suits your fancy, but it is considerably faster than having to search, buy and renovate the property before you can move in.

With a rented property, all you have to do once you decide is to sign a tenancy agreement with your Landlord and you can move in when you are ready. Unlike the long process of purchasing a property, rental transactions can be completed within a day or two.

Furthermore, renting allows you the option of choosing a length of stay that you are most comfortable with. You can choose to rent on a monthly basis or opt for a longer period such as a year. With a payment of a small premium, you can even opt for a fully-furnished property, where you can just pack your bags and move in!

Flexible
For those who have not decided where to settle down, renting provides great flexibility as you may move out whenever you please. This is especially so for those who may need to move out on short notice.

For example, you receive a job offer in another location and wish to be closer to work. In this case, all you have to do is inform your Landlord to end your tenancy agreement. There may be a small fee as a penalty for early termination of the tenancy agreement but other than that, there won't be much stopping you from moving.

This would not be the case if you owned the property as you will have to go through the hassle of putting it up for sale, finding a suitable buyer and negotiating the price before you can move house with your mind at peace.

Responsibility of Repairs Falls on Others
You don't have to fret if a pipe bursts or the light goes off on you because you are not responsible for it.

Your Landlord is, and it is up to him or her to find a contractor to repair the problems.

Keeping in mind that repair costs can be quite high, it is a relief to know that your Landlord is also the one who pays for the repairs.

Your only responsibility is to pick up the phone and notify your Landlord of any problems with the property. The repair works are usually completed within 14 to 21 days of notification.

Less Upfront Cost Compared to Buying
The Landlord usually requires some upfront payments that are in accordance with the tenancy agreement. This common practice usually entails the following:

Security Deposit: 2-3 months' rent (refundable upon end of tenancy)
Advance Rental: 1 month's rent
Utility Deposit: 1 month's rent

Assuming that the rent is RM 2 500 ($1,066) per month, you will have to pay between RM 10 000 to RM 12 500 to your Landlord upon execution of the tenancy agreement.

Other expenses such as the water and electricity bills, cable and internet service are payments that you have to foot yourself, depending on your usage.

Occasionally, the property's maintenance fees are included in the rent, in accordance with the contents of the tenancy agreement. Of course, you are free to negotiate with your Landlord on what payments to include or exclude from the rent.

On the other hand, being a tenant, you are on the losing end if your Landlord decides to increase the rent or choose not to renew your tenancy upon the expiration of the tenancy agreement.

You will have to either put up with paying more or find a new place to move to in a hurry. Either way, you have no say in the matter as you have no ownership of the property, which also means that you will enjoy neither capital appreciation nor the chance to convert your property to investment property to generate more cash flows in the future.

Why buy?

Pride of ownership and security
When you buy a property, it is yours to decide whatever you want to do with it. You can demolish, re built, refurbish or redecorate any part you wish.

There is no need to worry about seeking the Landlord's permission or restoring the place to its original glory when your tenancy expires. Also, it will definitely give you peace of mind to know that your tenancy will never expire!

Pay towards Owning Your Own Home
It's a given that no matter you rent or buy property, you have to fork out cash.

The difference is rental payments go towards occupancy for a specific period of time, where ownership will never be in reach.

Loan repayments, meanwhile, lead towards total ownership of the property. If the figures are only slightly different, it is advisable to consider buying than renting as ownership of property is almost always preferred.

If you are not sure of how to pay for a property, seek advice from your local bank. You can also research on different bank mortgage plans and utilise the loan calculators available on most banks' websites to help figure out which loan repayment scheme most suits you.

Capital appreciation and conversion into investment property
When the value of a property increases, who else will gain most from it but you, the property's owner?

This is a great upside to buying compared to renting, where tenants will have to pay more for the increased value of the property.

If you must move to a new property but is unwilling to sell your old property, convert it into an investment property! This will help you to generate cash flows while at the same time, maintain your ownership over the place.

Hedge against inflation
One major attraction of owning property is that it has proven to be an effective hedge against inflation.

Research has shown that property values can be trusted to increase at a rate greater than inflation. This comes as good news as everyone wants to maintain, if not increase, their purchasing power against rising prices of goods and services.

A great disadvantage of buying property is the hefty upfront costs.

If you purchase a home in the secondary market, you have to bear a minimum of 10% of the cost of the property before the Sale and Purchase Agreement can be executed. The 90% balance must be settled within 90 days, of which is usually done by way of mortgage.

This will lead to monthly commitments of payments to the bank or financial institution for repayment of the mortgage. Then, there are the legal fees for the Sale and Purchase Agreement and Loan Agreement, Stamp Duties, Insurance, and monthly maintenance fees and sinking funds.

You must also take into account the cost to renovate and redecorate the place. You are the Landlord.

Therefore, if any appliance in your home is broken, you will have to fork out the money to repair it. If it cannot be repaired, you will have to pay a bigger amount to replace it entirely.

It would be a wise move to check on the sales price trends of the area in which your property is located. If prices spot a declining trend, then perhaps it is not worth your time and money to invest in that property after all.

Rent with the option to buy
This option is growing in popularity as it provides assurance of the mind, as the tenant is secure in having a place to stay. Some Landlords are willing to accept portions of the rent as downpayment towards the home, meaning that the ownership of the property will one day go to you.

In other instances, tenants are given the first right to refuse to purchase the property should the Landlord decide to sell the property while the tenancy is still in effect.

All these depend on the agreement achieved between the tenant and the Landlord. Although tenants usually are left in a lurch to look for a new place when new owners take over the property, some new Landlords do honour ongoing tenancies so existing tenants do not have to worry about moving out.

Conclusion
As appealing as being a property owner might sound, not everyone should rush out and purchase a property now.

There are other factors to be considered first, such as your financial situation, job, and etc.

Both renting and buying have their perks, but buying is almost always preferred as it can benefit you in the long run.

However, depending on what suits your needs, sometimes it is more worthwhile for you to rent first. When you are sure that you will be able to afford to purchase a property, it won't be too late for you to start doing so.