Renting vs. Buying: A Simple Guide for Young Professionals
When you get your first stable job, and it is time to get your place, the first and most difficult decision you need to make is whether to rent or buy. At an early stage if your career, several variables can change, such as your job, location, and even marital status. If you buy a home and take out a mortgage, you will be tied to one place for a few years, and the amount of money placed into your deposit will be illiquid capital. If you rent, however, you keep on spending money on somebody else’s property, paying their mortgage off, instead of yours. If you would like to make an informed decision on whether to rent or buy a house, then the following guide is exactly what you need.
Consider Your Job Security
Getting on the career ladder is challenging, and there is a lot of competition out there. If you just started working for the company and are already worried about your job security, it might not be a good idea to take out a home loan for an expensive flat or house. You will need to be in your job for a few years and see a progress in your career before you can commit to staying. If you work in an industry where you can easily find a job in your region, you might want to settle down and reduce your living costs by not renting but buying a flat. If you are single, it is best to first invest in a smaller property to keep the mortgage and bills low. If you happen to meet someone further down the line, you might be able to sell and remortgage.
Make it Affordable
Young professionals often make a mistake buy stretching further than they should. If you are not married yet, you might want to keep it basic and simple. Look for a small flat that is secure and cheap to maintain. You are likely to spend most of your time commuting to work or at work, and decorate the property to your needs over time. If you pay 60 percent of your salary on your mortgage and bills, you will have little to live on and go out to socialize with colleagues and friends. While owning your place is great, it also comes with a considerable long-term financial commitment.
Consider Investment Properties
If you would like to make the most out of your investment, you might consider buying a property that needs renovation. You might not get everything you want from your home right away, but you can make improvements over time that will increase the value of your real estate and make you feel better about your living environment. Keep your mortgage low, and you will have money left each month to renovate the kitchen, bathroom, and bedrooms. Check out neighborhoods where the demand for modern homes is likely to go up in the next few years, and you can increase your home equity in a few years’ time.
Make it Easy to Move
One of the benefits of renting is that it is easy to move to another part of the country, and you will not have to worry about selling your real estate and buying somewhere else. If you have a job that offers career opportunities overseas or other states, you might want to keep your options open and rent instead of buying. You might want to get a service apartment near your workplace, so you save money on commuting. If you are presented with a promotion a few years from now, you will be able to accept, as you don’t have to wait until your house is sold and you can buy a new one. If you are ready to move to progress your career, you will be able to increase your chances for promotion. If your company offers overseas work, you might not want to pay a mortgage on a home that you don’t live in.
Check Interest Rates
One of the most critical aspects of finance to consider is the interest rates offered by your bank. If you have limited or no credit history, you might be offered a rate that is higher than the average, making mortgages less affordable. If interest rates are low, and you can secure a fixed rate for a few years, you can reduce your financial risks, knowing exactly how much you will pay each month on your home. This planning makes it easier to budget your salary and check how much money you have left each month for going out and household expenses. When you take out a mortgage, a change in interest rates can create a severe financial burden and make your budget get out of control.
Delay to Build Up Your Credit Rating
Many young professionals decide to postpone buying a house until they have an excellent credit rating and a stable job. Chances are if you have never had a home loan or credit card, and are currently living with your parents or friends, your credit file will not be desirable for most lenders. If you have just finished full-time education and started your first job, you might want to wait until the banks trust you and you are offered a good deal on a home loan. Find a cheap rent, share a flat with other professionals, if you are desperate to move out of your parents’ house. This way, you can build up your regular income, credit profile, and history before you make an application, and you will get a good deal on your first real estate purchase.
Buy in Developing Neighborhoods
If you decide to buy an apartment close to your office and are planning long term, the best approach is to look for neighborhoods with a positive growth potential. You must look for areas that are likely to be redeveloped in the future, increasing housing and apartment prices. Further, check whether or not shopping centers are planning to move into the neighborhood and the ratings of the schools nearby. Several inner-city neighborhoods are currently undergoing a regeneration project by the government, and if you buy a flat or apartment nearby, you can see the price of your property increase over time, giving you a good return on investment. If you choose an inner-city neighborhood, you can benefit from excellent transport links, amenities, and a convenient location that suits your busy lifestyle.
Buy Cheap and Add Value
Buying presents more opportunities than renting. If you rent an apartment or flat, you need to take it as it is; there is very little you can modify in a rental property. In most cases, you will need the permission of the owner or real estate agency to redecorate rooms or even upgrade your kitchen. If you buy a cheap property with great potential, you can add value over the coming years, and sell on for a profit. You might be able to get a small one-bedroom house and renovate it to the highest standards, even add an extension to make the kitchen or living room larger. If you manage to save money on your property purchase, you can have some funds to invest in adding value and increasing the future price of your home when you decide to move on and sell.
Compare the Price of Rent and Monthly Mortgage
The cost of living is essential for young professionals who are just starting off. If you can rent a home for $750 a month and you can get a mortgage on it for $600, it makes sense to buy, provided that you feel secure in your job, and you can maintain or increase the value of the property you buy. Remember, however, that if you buy your home, you will be responsible for all repairs and renovations, and this might increase your living costs.
Whether you are focused on your career or want to get the best value out of your money, you have to consider your property options carefully. Check the total cost of renting and buying, and ask for a copy of your credit report before you make an application for a mortgage. The main benefit of leasing is flexibility; your needs for space and location might change in the next few years, you might move in with somebody you meet or need to relocate for work. However, if the thought of paying off somebody else’s mortgage instead of your own makes you feel anxious, you might need to look for a small flat that you can afford to pay your loan on. You can then add value to over the years, so you can sell for a profit and move on when your circumstances change. Overall, you need to consider your financial security, your job prospects, personal preferences, conditions, and credit rating. Remember not to stretch your budget too far at an early stage of your career, and build up your real estate portfolio slowly and carefully.