Should we buy or rent the family house?
Yesterday I had an interesting chat with my son’s principal.
I was telling her how we had bought our house over the weekend and she told me that she has never bought a house when her kids were small. She simply rented and now, after the kids are all well educated and grown up, she bought her first property.
Her remark made me think and ponder about what my views were. I have always believed in owning the family house rather than renting it for a simple reason – I do not want the decision to pack up and move to be the owner’s instead of mine! And with kids, this task can be quite daunting.
I also think her remark depends on several things, notably:
1) Your capital outlay. If your capital outlay is small, you are effectively not losing out on the opportunity cost (for education funding for example). Let’s say you are buying a RM500,000 house with 10% downpayment. You are probably looking at a monthly instalment of RM2,500 depending on interest rates.
Assuming that house will command a rental of RM2,000. In this case, you are paying RM500 more every month for a house which is effectively yours from day 1, and you are not exposed to the likelihood of being asked to evacuate because the owner decides to sell etc.
Of course one could argue that the additional RM500 will be an opportunity cost seeing that you can potentially invest this amount into some sexy investment vehicle and make more money to buy the house cash sometime down the road. But then, this means the risks are high too.
So really, I think renting in this respect is not going to help you save much.
2) Your personality. Make no mistake, this is a very important consideration point. Some people are very comfortable with taking loans. I am a good example of this. I do not mind being indebted to the bank because I always go in with a game plan. Noted, this game plan may not be perfect, but I have a plan. And I guess having a plan makes all the difference because when the environment changes, you are reverting back to the original objectives and you can adjust/ ammend easily.
My other half, on the other hand, is simply terrified of owing the bank anything and is always trying to pay down as much as possible. His mantra is, if I do not have sufficient money for the downpayment (note, this is the amount he thinks he should put down, not necessarily mean the minimum required), he would prefer to rent. This is not an entirely wrong approach provided you are disciplined enough to save and hold on to the money you planned to put in. If you spend all, then you will not be able to buy anything in the end!!
3) Whether you like to change your views. Some people like to move houses frequently because they want a change of view and feel of places. Then renting is perhaps best as it is cheaper to draw up a rental agreement than a sales and purchase agreement!!
Some people also move around a fair bit because they are not sure where they want to settle in, or if they are still single, and do not want to settle in a place till they are married. In cases like these, perhaps renting is best.
Despite all, I still prefer to own the house I am living in. Besides having to deal with the kids, owning the house gives me better control over where I will be tomorrow, next month, next year etc.
Although Robert Kiyosaki did say that the house you stay in is not an asset because it is not generating income for you, to some extent I have to disagree with him because the money you “save” from renting ultimately becomes the “income” to you and helps you in the end to own the house. This does not include the capital appreciation that would take place.
What do you think?
