December, the month of Christmas and New Years'. Lots of celebrations meaning some bigger expenses. This wasn't any different this year even with corona. We just did it on our own and just handed over the gifts outside. We went a little wild with food but my income was higher so it balanced things out a little bit.
Last Updated on August 26, 2019 by Mr. FightToFIRE
To buy or to rent, that is the question
In search of my own place, I’ve started talking to friends and colleagues about my search. I shared how difficult it is to find what I want I even questioned if it was really the best idea to buy.
This sparked some older friends and colleagues to give me some friendly but (unsolicited) advice on their beliefs. Especially how the Belgian housing market is a bubble ready to burst, meaning I shouldn’t invest in owning my own house or apartment.
While there have certainly been some (news) articles about this topic (Mooijman, 2017) and it seems to make sense at first glance given the continuous rising housing prices, but at least research (De Lange, 2014; De Smet, 2017) indicates that this is more of a feeling than a fact.
That said, there are definitely up- and downsides to owning or renting a place of your own. All of these can be found online with general guidance. This is great, but that doesn’t help me if it doesn’t fit with my situation.
Time to do some thinking and self-reflection to decide what I need (and want).
My biggest reason for buying straight away is the financial advantages it gives me in the long run. My house actually becomes a piggy bank. It will be worth more in the long run (although no one can guarantee that). On top of that, I can always rent it out after a short while. Though I need to be careful with this so since there is a government incentive when it’s my first and only home. The government gives tax deductions but as we know these things aren’t set in stone so when push comes to shove, the government can and will change the rules of the game. So I should make use of it while I still can. Heck, they already changed it recently.
When I pay off my mortgage after 15 to 20 years, the house is all mine! I no longer have anything to do with the bank and live almost for free. Almost because, well, I still have other costs (gas, water, electricity, maintenance, taxes, insurances). These costs continue as usual and will still take a bite out of my budget.
Another advantage is related to freedom. With my own home, I can do whatever I want. The building, for example. Do I want to change the kitchen? Let’s do it. I don’t have to ask the landlord for permission.
And when the renovation increases the value of the house, I don’t suddenly start paying for it anymore. I pay for the mortgage and it won’t change. Though to be frank, I don’t plan on doing any major changes, that’s why I’m looking for a house that fits me and my girlfriend as much as possible. I will most likely install a split unit airo though. I get warm very quickly which makes it very difficult to fall asleep during the summer.
Another thing I can easily do is paint the walls, or do some minor home automation improvements that will make my life easier. As an IT’er I love work with electronics and implement things that can automate tedious tasks. I won’t be able to do this when I rent.
Freedom of choice
There is a wide range of properties for sale. I have an extensive choice of types of homes and places to live.
Though this is diminished quite a bit because I already have a location in mind and looking in that area plus taking my preferences into account the options aren’t as many, especially if it has to fit into my budget of ~€300,000.
Through sites such as zimmo.be or immoweb.be I can easily filter and even set a mail alarm whenever a property goes on sale.
Not to own
My money is "stuck"
The majority of my money and future money will go into this house or apartment.
It’s a commitment for multiple years which means that I won’t be able to put my money into my trading account. This has an impact on my return, especially f the stock markets declines and there are new opportunities to invest in, I won’t be able to, or it’ll at least take longer to get a decent amount.
Though a recent study actually suggests that homeownership can actually yield a greater return (Brockmans, 2019).
Mortgage monthly payments often (much) higher than rental fees
Since the investment I want to make is around the €300,000 figure my monthly mortgage payments will most likely be around €1,000 (give or take €100). This will almost definitely be higher than the monthly rent I would have to pay for a (smaller) apartment located closer to my job.
Many (unexpected) costs
Buying a place costs a lot of money. I will have to apply for a mortgage, but even then, since banks prefer to have at least an LVR (Loan-to-Value ration) of 80% or lower (with the NBB pushing for even stricter rules) (Nationale Bank van België, 2018), it’ll still cost a lot of money.
I’ll also pay a large amount of tax and additional costs when I buy. I can do the calculations already by going to notaris.be and plug in my data. For a house of €300,000, the costs will be between €34,195.96 and € 34,558.96.
These costs aren’t small and they are forever lost. No one can predict whether I will earn it back in the short term due to a rise in house prices.
I already mentioned costs prior but maintenance is worth mentioning separately since I will have to carry costs for the maintenance of my house myself. No landlord I can call for leaks and other problems. And I have to pay for it yourself.
I’ve come across the following percentage when it comes to maintenance: at least 1 percent of the value of the house per year. But they vary quite a bit from one type of house to another and from one owner to another.
I’ve read averages ranging from €2500 euros to €5000 annually. These are averages, so those amounts will vary enormously from house to house. That maintenance includes a lot of things. From the standard exterior painting to the replacement of the central heating system. Everything in and around the house needs occasional maintenance.
So I need a good contractor or handyman, or and more likely, learn how to do things myself.
When it comes to renting, the advantage lies mainly in the financial security that I will have.
I pay the rent and don’t have to worry about the maintenance costs of the building.
I know what the rent (and shared costs) is and also that it will increase a little bit each year (this is, of course, a disadvantage). But even if your house needs major maintenance, it’s at the expense of the landlord.
Lower extra costs
Next to only paying rent and maybe a fixed monthly shared expense, I also pay less for insurance. The insurances related to the property are paid for by the landlord. As a tenant, I also pay less tax than a homeowner. For example, I will only pay the user part of the water board tax.
With a rental home, I can be pretty flexible though it’s not as flexible as I thought at first. There are fixed terms: indefinite, >9 years, <9 years, and short term, i.e., 3 years or less. I can cancel 3 months before the end of the term but not sooner unless stipulated in the contract signed by both parties.
If I want to rent for a shorter period of time than 3 years, which could be realistic in my situation, I have to be clear about this beforehand.
So while I’m definitely not “stuck” to a mortgage, It’s not as flexible as say an American rental agreement. This has its downside, less flexibility but the upside is that I also can’t be kicked out (unless I vandalize the apartment of course).
Not to rent
Paying off the mortgage of the landlord
The number one drawback for me is still that I will never see the money I pay in rent again. Yes, I get something in return, a roof over my head and the benefits mentioned, but the money I pay in rent is, in a sense, “lost”.
After thirty years I probably pay a lot more rent than now because of indexation but what do I get for the increased rent? Nothing, I still won’t have my own house.
Indexation of the rent or even just increase in rental price
My rent will follow the indexation every year by default. So I pay more each year for using the same building. When that goes on for years, I will have less and less money left for myself.
On top of that, the landlord is allowed to increase the rent as long as he informs me between the 9th and 6th month before the current contract comes to an end. As a renter, I would be entitled to disagree but then it will go to the justice of peace to judge if the rental increase is justified. Two reasons are accepted: Due to new circumstances, i.e., the neighborhood becomes more desirable or changes to the building to improve liveability.
Dependant on the landlord
I get to deal with a landlord. That might be nice when it’s a good one but it won’t be strange if I end up with a “bad” landlord. You know, the one that does nothing about maintenance and will only see me as a dairy cow to pay off his mortgage.
Furthermore, for (major) renovations, permission from the landlord is required. So I can’t just install a split air-conditioning unit which to me is important especially with the increasingly hot summers. I should thus look for a house that fits my needs but then that plethora of choice quickly disappears. Especially in Belgium where air conditioning is not really a thing.
Cutting the Gordian knot
- Mooijman, R. (2017, November 25). Hoogtevrees op woningmarkt. De Standaard. Retrieved from https://www.standaard.be/cnt/dmf20171124_03206654?articlehash=FCC3711234961261FB24346B860C361E9D37EEBAF07A46E85644C42B8FD9047FA3FE49BA459B682A1BF3C490988F5AB65442DA88BB7422A258BEE2713484DE72
- De Smet, J. (2017). HUIZENPRIJZEN & LENINGSTANDAARDEN IN BELGIË (Master’s thesis, Universiteit Gent, Gent, Belgium). Retrieved from https://lib.ugent.be/fulltxt/RUG01/002/350/889/RUG01-002350889_2017_0001_AC.pdf
- De Lange, B. (2014). Stijgende vastgoedprijzen in België ondanks de crisis (Master’s thesis, Universiteit Gent, Gent, Belgium). Retrieved from https://lib.ugent.be/fulltxt/RUG01/002/164/963/RUG01-002164963_2014_0001_AC.pdf
- Martin, K. (2019, June 7). Mario Draghi keeps a lid on the ECB’s magic fairy dust. Financial Times. Retrieved from https://www.ft.com/content/c66b65be-8863-11e9-97ea-05ac2431f453
- Brockmans, H. (2019 May 28). Knack. Retrieved from https://moneytalk.knack.be/geld-en-beurs/beleggen/woningen-of-aandelen-wat-biedt-het-hoogste-rendement/article-normal-1470053.html
- Nationale Bank van België (2019). Macroprudentieel verslag 2018. Retrieved from https://www.nbb.be/doc/ts/publications/fsr/fsr2018_verslag.pdf
2. Should I buy or rent my first home?