Rent vs. Buy: Long-Term Financial Implements
When deciding if buying a home is the right move for you, the first step is to check whether you can afford the market rate and all of the other costs associated with ownership. While many people analyze that first big financial question, too many overlook the next important factor, which is to look down the road and evaluate the implications of ownership on your future. You should consider what your life might look like in another 2 years, 5 years or 15 years into your investment.
Check on Savings:
Start by looking at your savings. Without the savings, being unemployed could mean giving up your standards of living immediately or forcing you to ask help from people. For this reason, you should not sacrifice your savings to purchase a home; you’re better off saving more money on top of your emergency.
Next, make a list of some of the medium to long term goals and responsibilities that require money. Raising kids, supporting elderly parents at some point, dreams of extensive travel, all these have financial expenditure. Remember that saving for your future is just as much a current expense as a mortgage payment and your income has to support both.
If purchasing a home you have to reallocate means from any of your goals, you may have to give that thing up for your new home. Keep in mind that your budget has to balance one way or another
Consider Mortgage Payments:
Speaking of income, will your mortgage payment be so large that it takes two salaries to pay it? If so, consider the possibility that one of those salaries could go away or be reduced in the event of a job loss, change of job. If your savings is non-existent, you could find yourself in a position where you are unable to make the payments without the help of your friends or relatives. Many financial experts suggest that your housing costs only consume about 30 percent of one person’s income. That way, if your spouse ever loses his or her job, you will still be able to afford your home. Figure out what your individual 30 percent is and whether your payment fits within that strategy.
It is also captious to value the opportunity cost of the money that you use to buy a home. Although home prices can appreciate, there is no guarantee, and if you put all your savings into a home that leaves you with nothing to invest elsewhere.
Duration of Your Stay:
Think about your time period for staying in the home. Will you be there long enough to recover your closing debts? Remember, the real estate market can be unpredictable, so if you need to sell your home quickly due to necessary events, you may be forced to sell your property during a market downturn. In this case, the question of buy or rent is a little easier; you don’t risk losing money if you have to leave after only a year or so. Length of time you live somewhere also connects in with return on investment. However, as we said, the real estate market is hard to predict, so don’t use your house as your only investment.
Bringing it All Together:
The points mentioned are important on their own, but they are even more impactful when considered as a whole. Compare possible mortgage payments to rent costs and estimate how long you’ll stay. Would you pay more with the mortgage or the rent for that amount of time? Do those payments allow you to save for your future and meet life goals? Have you considered costs associated with maintenance? An individual has to place all these questions in the list before buying their house.
In big cities like Chennai, people prefer to buy their new homes than to pay rents on monthly basis. More than just flats, people prefer luxury apartments in Chennai as regular lifestyle has become old fashioned and upgrades in people’s lifestyle has been enormous. It is always better for people to buy their new homes as it brings much more happiness and freedom compared on being a tenant.