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Buy or Rent to Live In?

Is it better to buy on credit, or to rent your primary residence? It depends on the duration!

Simulator

Explanations

What is this devilry?

How is it that renting could be more advantageous, especially in the short-medium term? After all, when you rent, nothing belongs to you at the end, whereas with a purchase, at the end you own a property.

Acquisition costs

The main reason is simple: when buying real estate, there are large acquisition costs at the time of the transaction. Typically these are agency fees and notary fees, which amount to about 5% and 8%, or 13%, of the total price of the property. This quickly represents a substantial sum, see above.

Loan interest

Moreover, for an equivalent property, monthly payments are higher when buying than when renting. This is mainly due to the interest on the loan. This means that often, you can live in a more spacious accommodation by renting than by buying, while paying less each month.

Monthly savings

This difference between rent cost and potential loan monthly payment is the monthly savings capacity. If you rent, you can save this amount each month, in addition to the down payment you can save directly. Depending on the savings yield, this can represent large sums after a certain time. This reddit page summarizes the main investments.

Leverage effect

When real estate appreciates

The leverage effect, which only occurs when real estate appreciates. The reason: we lock a large amount of capital representing the real estate. Each month we unlock a proportion of this capital, but it appreciates in its entirety.

When we have finished repaying, we only save the monthly savings capacity, on which the return is lower, because we buy gradually rather than buying a large sum at once.

Of course, if the property depreciates, that is to say it loses value over time, then the leverage effect is a very bad deal. This can be seen by setting a negative evolution of real estate prices.