Which is the Better Option for You #
Whether in real life or in social media, there is a passionate debate going on about the one big question: Which makes more sense – buying or renting a house to live in. One side says "Why would I pay rent to a landlord each month instead of investing it into my own home?"; while the other side claims, "In a rented property, I have it easy – if a door hinge breaks I just call the landlord and have it fixed." Valid points, both of them.
Here are a few considerations to help you see which is the better decision for you.
Advantages of Owning #
- If a property is in good condition, cost of ownership can be less than renting.
- As a buyer you have control of the property and can realize increases in equity and capital gains on the property. Current market areas in Mallorca see double-digit increases in sales prices due to high demand.
- You will create a savings account, of sorts, because you will be investing in your home as an asset, especially when you are paying a large down payment or purchasing all cash.
- Buyers have certain tax advantages. You’ll need to discuss this with your accountant and attorney for specifics to your case, especially if you are a tax resident of another country. Just be aware, unless you hold residency in Spain at the time of buying, you will not be able to qualify for a lower capital gain tax with the Spanish authorities.
- A big advantage is to have personal freedom to decorate, remodel and make improvements as needed and wanted. As a tenant you may think you can live with a broken light near the pool. However, that out-of-date “Boletín eléctrico” becomes more than a nuisance when you want to run that air conditioner in late July. With temperatures hovering at 29-30°C at night, to pay for upgrades yourself even if you rent and not have any way to be compensated for this cost by your landlord. This happened to us in Andratx when an agent misrepresented a house we contracted in a rent to own agreement. Beware of bad agents!
- You are in control of your asset and the keys. While Spain has fairly good tenant laws, the landlord still has access to your place. If you want complete privacy, owning is the only option.
Advantages of Renting #
- Large asset acquisition is, of course, a big decision, the cost being a major consideration, and the time and energy to manage a property is also in important factor. You can save yourself a lot of hassle if you decide to rent.
- Owners are responsible for mortgage payments, taxes, insurance, maintenance, repairs and any dues to apartment blocks or owners' associations. As a tenant you are not.
- You have more flexibility to move or travel the world. If you own a holiday home in Mallorca, the reality is that you may take a vacation or two elsewhere but you will feel obligated to use your place most years, even if you rent it out part-time.
- The market and prices fluctuate which, if you're an owner, means you might have to be prepared to hold your home for a long while to wait out market dips – a problem you won't face if you rent.
- Renting in Spain affords you a few protections if you maintain your payment to the owner and keep the utility payments current.
Other Considerations #
Two considerations are to be factored into your calculations: How much is the market appreciating and how long will you hold the property? You’ll need to rent the property for a minimum of three years to recover transfer and acquisition costs.
Also, currency fluctuations make holding a property more expensive in certain years, especially with the current depression on British pound. The Euro exchange with currencies rarely has a counter pressure these days. The pound may be low for years to come which means that the Euro may not be at par or below but it will certainly not offer currency exchange advantages to owning property outside of the UK.
And, of course, affordability must be taken into consideration when deciding to buy or rent, despite the plans of a person to stay in a home for a long time. Many financial experts suggest that buyers keep their monthly residential payments at 33% or below their gross monthly income. If buying would mean overstretching your means, rent.
By Memphis Holland
30 July, 2019