Buy or rent an Apartment?
April 27, 2009
In time we will always (or have already) move from parents home, to our new place. It could be a house, an apartment, a room in apartment, whatever, but this is our new home, our own territory.
So in this situation, quite often interesting question arises, whether to rent the apartment, or to buy one?
I will overview this situation from the bank loan view for the apartment buying, that would be much interesting, and i think, more close to reality.
Prices
I live in Estonia. All operations will be in US dollars, but converted from prices in Estonia.
$1 ~ 10 EEK
The average 2- 3 room apartment (50 -70 square meters) costs now around or $100 000.
The average rent for the same flat is around $400 in a month.
Bank Loan
Loan interest= 5%
The interest is dynamically calculated, depending on economics and the sum you still need to pay back. The longer the period- the bigger the sum will be, that you pay back.
For example:
If you take a loan where interest is 5%. And we need $100 000.
| Years | Month payment | Interest payed | Whole sum |
| 5 | $1 887 | $13 227 | $113 227 |
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| 10 | $1 060 | $27 279 | $127 279 |
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| 15 | $790 | $42 343 | $142 343 |
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| 20 | $659 | $58 390 | $158 390 |
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It is easily to notice, how much the interest is getting bigger, depending on for how long you have taken the loan.
Bank loan VS rent
So, the interesting part. I will assume the bank loan will be taken for 20 years. I must explain. In Estonia an average salary per person was around $1200 in a month. Now it is much smaller, because of the world financial crisis. If family has 2 adults, so they can manage to live nicely, paying the loan.
| Years | Rent month payment | Bank loan month payment | Rent in a year | Loan in a year |
| 1 | $400 | $659 | $4 800 | $7 908 |
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| 2 | $400 | $659 | $9 600 | $15 816 |
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| 3 | $400 | $659 | $14 400 | $23 724 |
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| 4 | $400 | $659 | $19 200 | $31 632 |
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| 5 | $400 | $659 | $24 000 | $39 540 |
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| 10 | $400 | $659 | $48 000 | $79 080 |
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| 15 | $400 | $659 | $72 000 | $118 620 |
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| 20 | $400 | $659 | $96 000 | $158 160 |
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Conclusion
My personal opinion is. Buy a flat.
If you are not planing to go back to you parents home and have enough money, or wherever, but the apartment, or house. If you look at those tables, you can see how much money you will simply give away to somebody. It is like buying air balloons- they are nice, but useless.
The rented apartment does not belong to you, the owner can decide to throw you out (yes, and sometimes they give few days only to pack your stuff). You can not do anything inside (for example drilling a hole in a wall to hang a picture), and so on…
But when having a loan, you are the owner! You can do anything to you place, and this will be something like investing (7 years ago it was called an investment- to buy a flat).
And look around, the world financial crisis has dropped the prices way down!
What do you think?
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