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Is renting throwing my money away?


By Stuart Ritchie - June 16, 2019

Most of us own property back home.

Some of us have mortgages on our international homes too.

While most senior international professionals rent...

Emotionally, it often feels we should be buying.

Which one leaves us financially better off? 

Neither (if it's purely done for investment purposes).

Here's why.

A house is the largest asset that most families will ever own.

It is also the most emotionally meaningful.

I've heard many investors say renting is “throwing money away”

While buying “builds equity.”

If your reasons for investing in property are purely financial, you may want to reconsider your decision because of one of two reasons (or both):

1. The costs of home-ownership are significant

Renters largely avoid costs like transaction costs, home improvement costs, property taxes etc. 

Transaction costs create an immediate financial loss that takes time to recoup.

Sellers rarely fully recover all improvement costs.

And you would pay more in taxes and maintenance than you would've paid implicitly through rent.

2. The opportunity costs of homeownership are enormous.

The less obvious, downside of buying a home is the opportunity cost.

Money used for a down payment and mortgage (above what would have been spent on rent) could have been invested elsewhere.

Any analysis of the financial implications of homeownership therefore must compare the expected return of a house to the expected return of other investments, most notably stocks.

So why do people think housing is a good investment?

I recently watched a video from Bloomberg which answered this question nicely.

Granted it’s not specifically aimed at high-net-worth individuals…

But the debate around whether to rent or buy remains.

It argues that if you don’t plan to stay in the same place for more than 5 years…

You are probably better off renting.

 

 

There are a lot of good reasons to own your home.

But only do so with the idea of it becoming a place where you and your loved ones have a space to grow and do things you love.

If, on the other hand, buying property is to increase your net-worth...

You’ll be better off renting instead.

Even though that comes with far less prestige, it will free up more of your capital to maximise the returns of the stock market.

If you're looking to grow your wealth and would like guidance on creating a globally diversified portfolio invested in the world’s greatest companies, book a call with one of our qualified Financial Planners.

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