Buying or renting a house: what is better for you?

Being at the mercy of rent and without a home of your own or paying an installment to the bank and waiting for the day your credit expires? The decision is yours, but we will help you make the best choice between buying and renting a home.

Do you know what percentage of Portuguese people live in their own home? 77.8%. In other words, almost three in four people buy a home, while only one in four rents.

If you want to know the best decision for you, there are some clues that can lead you to find the right path for your long-term finances. And add a calculator to the equation because you’ll have to do the math.

Clues that indicate you should buy a house

There are several variables you should consider when choosing between owning or renting a home, but remember: the future has many answers. For example, the evolution of interest rates can be important in knowing whether you will make or lose money between buying or renting a home, as well as the increase in the price of the home or maintenance costs.

Paths that lead to purchase

The characteristics to make renting an option lie in your financial profile, your professional profile and the evolution of factors such as Euribor, house prices and rent updates.

Paths leading to rental

The main advantages: no maintenance costs, condominium fees and tax payments. Possibility to maintain the savings level.

Do your math

Ultimately, knowing whether a decision is the best depends largely on the future. However, try to understand how you can do the math to arrive at a scenario that makes sense for your housing model, over a 30-year time horizon.

See our example of buying and renting the same house.

Value of the house: 200,000 euros

Bank loan duration: 30 years

20% entrance fee | 80% credit.

Total costs after 30 years: €301,640

Total cost after sale after 30 years: €80,583

All costs considered: entry (€40,000), taxes (€5,513), bank and registration fees (€2,000), loan capital (€160,000), interest (€82,840), taxes (€18,000), insurance worth €30/month (€10,800) and maintenance/condominium of €1,000/year (€30,000). Sale assuming growth of 1% per year (sales price = €269,570)

Hypothesis 2 – Leasing

Rental value: €800

Total cost after 30 years: €288,000

All costs considered: Security deposit of €800, returned at the end, and rent of €800

Too close to a decision? Start by ensuring payment on your credit or ensuring compliance with your rent in an unexpected situation.

Don’t forget the opportunity cost

The example above does not show the real picture of money involved in one decision or another. It remains to add a determining variable: the opportunity cost. In other words, how much your money would be worth if invested another way.

Putting a large chunk of capital as a down payment can mean a more generous spread. However, it represents the inability to profit from the accumulated savings if you had the opportunity to rent a house.

If, for example, you gave 50 thousand euros as a down payment for the purchase of your new house, you could reduce the monthly loan repayment, but you would lose the possibility of earning more than 100 thousand euros in 30 years, investing the same capital to obtain an annual return of 2.5%.

This figure could rebalance the rental contract even more, since if you didn’t purchase it you could add more than 50 thousand euros in exchange for the investment.