Buying or renting a house

Croatian houses

In the past years I've read several different articles on the topic of 'renting or buying a house'. What is better or wiser? This interests me, because I currently live in a very small house and I would love to add some space to my living conditions. But at what cost and is it worth it? Just about all the articles I've read so far all talk about the financial side of things and although this is a very important part of it, it sure isn't a decisive one. I've done some thinking and here's my view on the matter.

Many people say that renting a house is like throwing away your money. Well....no it isn't. You're giving someone money and in return you may live in their property. Other people say that buying a house is an investment for the future. That actually makes more sense, but many people don't realize that it is a risky investment and it will often cost you much more money than the original price.

Renting

When you're renting a house you're basically just spending money in return for a service. Once the money is spent, it's gone. Also, you can be sure that the rent goes up just about every year, so you'll end up spending more and more over time. On the other hand, when you're renting you don't need to worry about expensive repairs or maintenance and taxes are much lower. And when your neighbours get on your nerves you can just terminate the contract and leave. Renting in general tends to be much less stressful and much more flexible, although I've also heard some really nasty stories.

When you want a rental house it is quite easy to get a contract and then you just move in. When you want to go, you can terminate the contract and leave. While buying or selling a house usually takes weeks or even months to complete and it often involves high transaction costs as well.

Buying

For many people, buying a house is the way to go. You can have many reasons why you want to own a house instead having to rent it from someone else. You can do whatever you want with it. Make any change you want. It's your own little kingdom. And once the mortgage is fully paid (and the house is actually yours) your living expenses go way down. That sounds great, but it's a little bit more complicated than that. I'm not fully up-to-date with the current mortgage conditions in the Netherlands, but I got some information a few years back and to me a mortgage seems more like a financial headlock.

In the Netherlands a mortgage is usually a commitment that lasts about 30 year. Some people's marriage doesn't last that long. The bank wants you to pay back the mortgage in those 30 years and not any sooner than that, because if you pay back the money for your mortgage much sooner the bank will loose money they would otherwise have made from you paying interest. Here in the Netherlands it is possible to pay more, but with most banks you're only allowed to pay up to 10% extra per year. When you pay more than that, you'll get fined. Also, when you sell the house before you paid back the mortgage, the bank will force you to invest all the money you got from the sale back into a new home. You cannot keep the surplus and go on a fancy vacation or use it to invest in stocks. As long as the mortgage is not paid off, the bank fully owns 'your' house. So, you really need to be sure that you're able to pay back the mortgage every month for up to 30 years. I don't know about you, but that makes me slightly nervous.

Nobody can tell what will happen in our lives in the next 10 years, let alone 30 years. If you get divorced from your spouse, chances are that you might need to sell the house. Maybe you can buy a smaller house for yourself or maybe you'll need to terminate the mortgage. Whichever way you go, it's going to cost you a lot of money. Even when you have a solid marriage things can still go wrong. Your house is in a fixed position. If the neighbourhood deteriorates then the value of your 'investment' will drop also as well as your comfort of living.

While you pay your monthly investment (I mean mortgage) it will never pay back any interest or dividend and you will never have any access to your investment until the mortgage is fully paid off. And when you finally pay of your mortgage you will notice that the amount of money you spent on the mortgage and the interest (and any fines) will amount to much more than the original price you bought the house for.

So, for me a house would be a very bad investment. Only when I see a house as a long term home rather than an investment, I would be interesting for me to buy. And maybe this should also apply to many other people. I often get the idea that people say their house is an investment to justify for the high costs they pay.

Here in the Netherlands the advantage of a mortgage as opposed to rent is that you can deduct the interest portion of your monthly mortgage from your taxes. However, over time the amount of interest on your monthly mortgage goes down until there's nothing left to deduct from taxes while your monthly mortgage stays the same. So, basically your monthly expenses go up over time, just like with rent.

Current market

At this moment the Dutch housing market has been overheated for many years now. There's a high demand for houses, but the supply is way behind. This is causing prices for homes to skyrocket. Whether you want to buy or rent a house, it is simply unaffordable for many people especially for young starters. And when there's an affordable house you'd like to buy you'll get about 20 minutes of viewing time, along with 30 other potential buyers, to make a decision whether you want the house or not. Be sure to offer more than 15% on top of the (outrageously high) asking price if you want to have a chance at getting the house.

When you want to rent it is not much better. There's a waiting list for social housing here in Utrecht. The current average waiting time is about 11 years, yikes! For private rental homes there's no waiting list, but those are just very expensive and scarce.

My view

To me both renting and buying have advantages and disadvantages. People most often talk about the financial aspects, but there is much more to it than that. I currently work as a self-employed Linux engineer, because that suites me the best. While other people prefer working on the payroll, because it gives them more security and stability. Actually I don't agree with that, but that's a whole different topic I might write about later. For me renting better suites me, because it's gives me the best sense of freedom and flexibility that I crave.

So, all these articles about buying or renting a house don't appeal to me at all, because they only talk about what's best financially (and they mostly only apply to the situation in their country with their rules and laws) while I'm looking at what best suites my way of living and thinking. To me that makes sense, but for some silly reason I have a hard time trying to explain that to people.

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