Rent or Buy? Eternal Question — Use This Calculator
Think before doing it!
I was talking to a friend recently, who told me, that he owns an apartment, but lives in a rented apartment. It got me intrigued, so I asked him why. After all, his apartment and the rented apartment where he lives are quite similar.
The answer he gave me was simple — he got people who were willing to pay such high rent for his own apartment, that for him, it was simply cheaper to rent another apartment and move out.
I was still perplexed because this makes absolutely no sense.
He goes on: well, my apartment is in one of the richest districts of the town and the new apartment is not.
With the money I get from the rent, I can cover my mortgage payments and a part of the new rent. If I stayed in my apartment, I would need to pay the entire mortgage, which is way higher than what I pay now for the rented apartment.
Hm, I say. Interesting. Is he smart or dumb?
Calculate What is Better
Now as a young guy, who does not yet own anything really (but wants to), I am looking to buy something and move on from renting.
The problem is that right now, everything is extremely expensive. I do not want to take a 30-year mortgage if it is not worth it.
So, is it better for me to pay the mortgage or to continue renting?
I have made a pretty cool discovery, that I wish to share with you.
Just follow this:
A) Deduct: Mortgage price — Rent price = Left Over Money (LOM)
B) Invest LOM.
C) Do you in the end have more money by investing? Or more money by buying the apartment?
Makes no sense?
No problem. There is also a calculator online provided by Financial Times.
Hopefully this helps.