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Should I buy a home or just keep renting?

 

The current hype around recent advice to millennials to “give up the avocado toast and pumpkin spice lattes and maybe you’ll be able to afford a home” got us thinking…

 

Despite almost every “millennial” dreaming of home ownership, most underestimate how much it will truly cost them when they’re living in the Cayman Islands.

 

With increasing housing prices and stagnant wages – millennials earn 20 percent less than boomers did at the same ages after inflation – means that home ownership (in their desired / preferred areas) is moving further out of the grasp of every day residents.

 

Millennials have half the net worth of boomers, with a much lower home ownership rate, while their student debt and the cost of living in a 2017 Caymans Islands is drastically higher – which means putting aside that extra cash every month can be difficult.  With both the rental and real estate market booming, it’s completely normal to feel overwhelmed and that you’ll never be able to own your dream home.

 

With the idea that home ownership could be an unattainable dream, some of us have given up saving for something that may never happen. The cost of living in Cayman is world-ranklingly high; food, entertainment and travel eats into the savings budget quite easily here.

 

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Other issues affecting savings can be that millennials may have had delayed careers due to the recession, or recently switching careers and having to start back at the bottom of the corporate ladder with pay rises something of the distant future.

 

Remember the recession in the U.S.?  The housing marketing and borrowing from the banks were truly to blame.  If you are American or studied in the U.S. during this time you might find that while you may be willing to take risk in other areas of your life, you might not be interested in being committed to 20+ years of debt… it was a stressful time and it encouraged everyone to look at their finances and how to plan for their future without relying so much on the banks.  It also generally encouraged the #YOLO attitude, the millennials coined…. for better or for worse.

 

Renting is underrated: this does not mean that buying is an unwise decision in the slightest but the rent vs. buy debate ignores a vast grey area that exists between the two options. There are many variables to be considered and they will be completely different for each person.  What can you realistically afford?  Do you have any savings or can you set up an achievable plan to start saving appropriately?  Do you have assistance from family or support if something were to go wrong? Are you confident in where you will be in 5-10 years’ time and what you will be able to manage?

 

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Many believe that renting is throwing money away but when it comes down to it, each person’s property journey is vastly different and there is no right or wrong path to take. Here are a few arguments for buying versus renting:

In favour of buying:

  • When you pay off your home, it’s yours. You eliminate the expense of housing once you’ve paid it off.
  • If the home appreciates more than you’ve paid in mortgage, interest, stamp duty, and maintenance over time, you’ve earned a return, or you break even.
  • It can be an investment property; the current boom in the rental market in Cayman means that you could potentially cover your mortgage, property fees and insurance and then some.

In favor of renting:

 

  • Renting isn’t just throwing money away – you get a place to live(!) and essentially, the owner is responsible for all repairs and maintenance.  Do you know how much it costs to repair a pipe that has burst?   A new AC handler?  How about flooding following a hurricane?  Insurance does not guarantee full coverage and not having to worry about any unexpected costs in relation to your home can be relieving.  You’re a phone call away to having your property fixed, at no additional cost to you (assuming you haven’t initiated the damage!)
  • Buying has opportunity costs – the amount you can invest and earn on the required down payment, strata & insurance payments, and interest is something to be considered.
  • If you do not have a goal to save towards a home, you can potentially afford to rent in a more desirable area.  Affording a higher rent on the beach or spending that extra cash on travel and entertainment can be more appealing than saving to purchase outside of your preferred area to reside because it is more affordable.

All points are valid, but at the end of the day you must make the best decision for you – take your time to plan, crunch some numbers, and perhaps change the way you think about homeownership as a sign of success at an early age.

When you buy a home, you pay for things you don’t have to pay for as a renter: loan interest, stamp duty, insurance, maintenance and repair costs and of course, furnishings. That’s part of the argument in favor of renting: there are many additional costs and factors that get overlooked and you need to be realistic – can you afford it?  Do you have the ability to keep your monthly expenses low enough to save?

If the numbers don’t add up, and you’re going to be struggling to enjoy your day-to-day life because of unexpected costs draining your funds or requiring multiple loans, buying a home for the sake of owning is pointless.

The sense of satisfaction you get from owning is kind of offset by the risk of liability costs or even losing it to the bank if you’re in way over your head. If the numbers do add up, however, and your monthly mortgage payment isn’t going to financially ruin you, that’s a different story.

The bottom line is: sometimes it’s smarter to rent, and sometimes buying can work in your favor.  Rather than giving in to one side or another, it’s more helpful to learn the rules, crunch the numbers, then do what works and feels right – for you.