Owning a Flat? the Bold, The Brave, and The Slightly Insane…(Part 1)

Question : Should i buy a house or rent an apartment?

Answer – Part 1 : (Warning: May Contain Sarcasm)

So, you are a young man with a solid number of working years on your back.

You scored a personal net worth reasonable enough to finally bring you to the question-of-questions…

The one question we all mortals have to face at least once in life : Should I Buy Or Rent??

Yes, buying a flat is a significant financial decision

It will heavily influence your lifestyle, and there are many factors to consider before eventually making the investment. 

In this article, we will deep dive into a variety of pros and cons of buying a flat to help you decide whether the right choice for you is instead to just sign for a rental contract and call it a day!.

In general, a significant financial investment like purchasing a flat has to relate to the medium to long-term goals of the individual : It makes a world of difference if the buyer is looking for a property to live in rather than purchasing a space to generate revenues from.

And in this case, it has to be evaluated if other options may offer better flexibility and ROI than purchasing real estate.

Consequently, the question “Should i buy a house or rent an apartment?” has to take into consideration different assumptions.

Different earnings aspirations and different toleranceshas to be associated with costs and risks. For instance, the potential for appreciation of the property plays a completely different role in the respective scenarios described.

Ugh how complicated!!..let’s try to make some order here…

Should I Own an Apartment? My Personal Experience…

In the late 90s’ I secured a nice contract as a Sales professional in an important firm in Pescara-Italy, and I was making tons of cash (the Italian Lira was still strong!!).

I figured out that with that monthly cash flow, I could easily buy a home to stay with my wife (no children planned!!), pay off the mortgage in 4-5 years and then use that property as collateral for the next buy, rent it and pay off the mortgage even faster, buy another one, rinse and repeat…

Yeah man, I was such a genius!!

The house I bought was inexpensive enough to accommodate for my “treasure finder Ego”.

Enter the euro….

In the meanwhile, the EURO came along and destroyed the buying power of every family, mine included (goodbye dreams of becoming the Emperor of my neighborhood…). 

But I was still proud of my purchase until time started to prove why it was so cheap : 

The ceiling was leaking in different spots, and we never came to fix it completely, even burning thousands of Euros in the attempt. I took care personally of many of the repairs needed while running my day job (Man, many times I just wanted to cry in a corner and be forgotten…).

In the end, we ran out of money, and with perfect timing, my daughter Mavi came in the family!

…Yeeezzz I was a Father now…how wonderful!!…🤣

Rainy Days Comin`…

To make a long story short, I bashed my head around to find an even better job (a really bad idea)…

I started driving trucks finding myself even more miserable than before, then got back to the previous sector while the financial crisis of the middle 2000s took over.

Now I was the father of 3 and the whole real estate market was tumbling down…

The only advantage we had was a monthly rate of roughly 400€ to pay for a house that would have cost around 800€ to rent…

To conclude, when we moved to Germany in 2013, we put the house up for sale straight away, and still we had no chance to sell it until 2021 with the housing market at historical lows!!…enough said…

Looking back, the worst mistake I made was not improving my knowledge (the King of Naive…) and not planning enough every step to make after the purchase, with particular attention to the financing aspects. 

And appropò, did you started saving money at the right time?….well, but what is the right time to save? I wrote a specific article discussing the subject, follow the link and enjoy!

Now, Should I Own An Apartment???

Don’t fret my friend. This article is designed to pose you in a far better position than mine… 

Let’s examine the whole thing together step by step :

One of the main advantages of buying a flat is the potential financial benefits. Just like it happened to me, if you are able to secure a mortgage at a low-interest rate, your monthly payments may be lower than what you would pay in rent.

Over time, this can add up to significant savings. Additionally, if you are able to pay off your mortgage, you will own your flat outright and will no longer have to pay any housing costs (excluding taxes…).

A secondary benefit is the sense of ownership and stability it provides. When you own a flat, you have a physical asset that you can call your own and that can potentially increase in value over time. Owning a flat can also provide a sense of community and belonging, as you become part of a neighborhood or building with other residents.

(And by the way :There are also potential tax benefits to owning a flat. Homeowners may be eligible for tax deductions on mortgage interest payments in some specific countries, check it out!) 

Additionally, if your intention is to flip your flat for a profit, you may be able to exclude a portion of the gain from your taxable income. But wait, read on…

Rising Number of Buyers expected in 2023

Here is a chart of mortgage purchase applications compared to the movements of the 30-years fixed rate in 2022

Though the interest rates are still high if compared to a year ago, there is an unexpected surge in the applications starting from end October till the end of the year, and those are the winter months, where normally the real estate market abruptly slows down…

Now, since it is expected that the interest rates will continue to go down in 2023, there is a strong evidence that even more money will be attracted by this market,

And If more buyers are hunting for housing deals in 2023, should housing prices really decline in 2023? Uhm…

Well, it seems that Fortune.com has also something to say about “rent or buy“…

Don´t Fear The FOMO!

Financial market experience often the syndrome called FOMO (Fear Of Missing Out), and real estate is no exception. Since the vast majority of new buyers are pretty uneducated, they could run to purchase at any price if they perceive the opportunity slipping away from them.

This equates to the best scenario possible for the seller!

However, there are also several drawbacks to consider when deciding whether to buy a flat. 

The first, most evident one is the cost. Buying a flat typically requires a significant financial investment, including the down payment, closing costs, plus, once the space is yours, you have to care for ongoing maintenance and repair expenses. 

(Oh, and additionally, if you are unable to make your mortgage payments, you risk losing your flat to foreclosure…)

Narrowing Your Options

For me personally, I found that the biggest drawback of buying a flat is the lack of flexibility. Let’s be real, once you’ve committed to a mortgage, you’re pretty much stuck in that location until you can sell the flat. And let’s face it, who knows how will it end in today’s market??

So, once you have purchased a flat, it can be difficult and costly to sell it while also moving to a new location. This can be especially problematic if you need to move quickly for work or other reasons, or even if you decide you no longer want to live in the same area.

Moreover, you are allocating a vastly relevant percentage of your wealth in a single project, that, though offering the advantage of a reasonable volatility and a solid implied value, forces you to lock up your capital for a considerable time (often many years).

Other Variables To Consider

Keep in the calculation also the other expenses to consider when buying a flat, such as property taxes, homeowner’s insurance, and association fees (if you live in a building with shared amenities). These expenses can add up and may not be included in your mortgage payment.

It is also important to consider the location and condition of the flat you are considering. A flat in a desirable location or with modern amenities may cost more, but it could also be a better long-term investment.

On the other hand, a flat in a less desirable location or in need of significant repairs may be a less expensive upfront, but it could also be a financial burden in the long run.

Before making a decision, it is a good idea to carefully consider your financial situation and long-term goals.

So, before asking yourself : “should I own an Apartment?”, here are some key questions to pose yourself :

• Are you financially stable enough to handle the upfront and ongoing costs of buying a flat?
• Do you plan on living in the same area for an extended period of time?
• Are you prepared to take on the responsibilities of homeownership, such as maintaining and repairing the property?

…And this small list is far from exaustive…

It is surely a good idea to seek the advice of a professional to help you understand your options and determine whether buying a flat is a financially feasible option for you.

In the nitty-gritty of real estate investing, there is more than purchasing a flat to live in…

Did you know? You could also buy and flip real estate for a profit…

Need more ideas and insights about saving money or even some saving investment plan you can take advantage of? I wrote some interesting insights, check it out…

Why Owning a Flat Nowadays Is a Bold Move (I mean, Seriously Bold…)?

(Warning: Insane Rant Alert!! 😄)

Oh boy, should I own an apartment then?? What a loaded question, isn’t it? 

Well, let’s try to build a reasonable answer…

We considered the issue of costs. Buying a flat is a financial investment that is about as thrilling as having your teeth pulled out!! 😀

Sure, you’ll have to come up with a hefty down payment and closing costs, but the real fun doesn’t stop there. Oh no, you’ll also have to pay for ongoing maintenance and repairs…

And by the way, what about property taxes, homeowner’s insurance, and maybe even association fees??

And let’s not forget the joy of having a mortgage hanging over your head like a dark cloud, just waiting to ruin your life if you can’t make the payments.

But hey, at least you’ll have a physical asset to show for it, right? Something to brag about with yourself before sleep…

“A house price index (HPI) measures the price changes of residential housing as a percentage change from some specific start date (which has HPI of 100)”.  

(See?? it seems that the housing market is trying to stabilize itself and recover from the last rollercoaster-rides of 2021…)

Aha!! And now you are “The Owner”…Yahooooo!!!…No more relying on a landlord to fix that leaky faucet or unclog your toilet.

Now, you get to do it all yourself! Yay!!! (remember my story?)…

But What About the Benefits?

But hey, at least there are potential financial benefits in this game, right?

Otherwise why should you own an apartment?

If you’re able to secure a mortgage at a low interest rate, your monthly payments might be lower than what you would pay in rent. And maybe you´ll be even able to pay off your mortgage someday…

You’ll own your flat outright and won’t have to pay any housing costs. Sounds like a win-win, right?

Except for the fact that YOU DO NOT CONTROL THE MARKET!

The value of your property could go rapidly south under specific conditions (like the ones we are living in nowadays).

…and in case you can’t make your mortgage payments, you risk losing your flat to foreclosure. What a positive scenario…

But hey, at least you had the chance to tell your nephews : “You know kids, Granpa was once a homeowner!”…🤦‍♂️🤦‍♂️🤦‍♂️

Is It Better To Buy Or Rent ?

Ah, the age-old question: should I own an Apartment or renting is a better option? The answer is simple: it depends on how much you enjoy throwing your money down the drain!!! 😂

If you choose to purchase an apartment, congratulations! You get to experience the thrill of taking on a mountain of debt in the form of a mortgage!

And as a benefit. you get also all the other optionals we have already described above…. But hey, at least you’ll have a physical asset to show for it, right? Something to brag about to all your broke, renting friends…

On the other hand, really, why should I own an apartment?

If you choose to rent an apartment, congratulations! You get to experience the thrill of throwing your money down the drain every month. And with no hope of ever seeing it again.

And let’s not forget the joy of dealing with landlords and property managers, who are always so understanding and accommodating.

…But hey, at least you have the freedom to move whenever you want, right? No commitments, no strings attached. Just a never-ending string of paying rent and getting nothing in return! 😁😁😁

But Seriously…

Ok, Ok, I apologize, too much fun here!! 🙂 …Let’s calm down a tad and show our reliable, academic alter-ego here : 

“There are a number of reasons why could be reasonable to prefer renting a flat to buying it. Here are a few to consider”:

1. Affordability: One of the primary benefits of renting a flat is that it can be more affordable than buying (of course it depends on many factors). When you rent, you’re only responsible for paying a monthly fee. And the fee should even be lower than the cost of a mortgage. This can be particularly appealing for those who are on a tight budget or who do not intend to commit to a long-term financial obligation.
2. Flexibility: Renting a flat can also offer greater flexibility than owning one. If you need to move for work or personal reasons, it’s much easier to break a rental agreement than it is to sell a property. Additionally, if you foresee changes in your family (the arrival of a child for instance), renting can allow you to afford different solutions and neighborhoods without committing a big chunk of your capital.
3. Lack of responsibility: When you rent a flat, you don’t have to worry about the responsibilities that come with homeownership, such as maintenance, repairs, and property taxes. This can be a significant plus to consider, especially for those who are short on time, have little experience with home maintenance, or rent a flat in non-optimal conditions.
4. Investment opportunities: Like I said before, renting a flat can allow you to free up financial resources (capital) that can be used for other investments. This way, you may be able to invest in different financial instruments that can provide a higher/faster return on investment.

Ok, Drawbacks?

But of course, there are also potential drawbacks to renting a flat. For example, you may not have as much control over your living environment. And you may not be able to make changes or renovations to the property.

Additionally, you will not build equity in the property, as you would if you owned it.

I will tell you my own opinion later, but I understand completely that the decision to rent or buy a flat will depend on one’s individual tastes and financial goals. It’s therefore important to assess your options and aspirations and, if needed, to seek the help of a professional before making a decision.

Are you in your 20’s and you would like to know how you’re doing financially? Do you ask yourself “am I broke?” Then check out this article.

Why Owning an Apartment May Be a Better Option Than Renting

To recap : 

1. Financial benefits / Saving money as opposed to renting
2. Increase in Personal Net worth
3. Complete control of the purchased space (design/renovation etc.)
4. Potential appreciation of the property
5. Possibility of flipping the property for a nice profit

Why Renting an Apartment May Be a Better Option Than Buying it 

To recap : 

1. More Affordability (it depends on type, location etc), no money down.
2. Location Flexibility in case of changing needs.
3. Freedom from the cost of maintenance (it can be a huge plus)
4. No locked capital (except for rent deposit)

Wow, this is going to need more space than a classic post, so i decided to split the whole article in two parts…

Let´s complete the answer to the question “Should I own an Apartment?” – See you in Part 2

(…and of course, if you already have question, feel free to write them in the comments section!)