Rent or Buy? Here’s How to Decide

Buying a home in The Bahamas is a major milestone and life goal for many people. The common sentiment is that rent is throwing money down the drain while buying a home is an investment that builds equity — but the truth is more complex!

Personal finances, lifestyle, goals, location, and the economy all play a major role in whether or not it’s a good idea for you to buy a home right now. You control some of these, such as your desire to stay in one place for an extended period or not. But others, like home prices and downpayment requirements, are outside of your control. If you’re on the fence about buying a house, take a close look at each of the following factors before making your decision.

Stability vs flexibility

The choice to take on homeownership has as much to do with lifestyle as it does with your finances. In fact, even if you can afford to buy a home, you should only do so if you’re ready for a major commitment. Why’s that, you might ask? Because you purchase a home, you’ll need to stay in it for at least five to seven years to build equity.

Why is equity important for homeowners? Because it represents basically the amount you’ll get back when you make a home sale. Equity is the difference between the value you sell your home for, less the closing costs of the sale, and less the amount you still owe on your mortgage. Waiting five to seven years before selling your house and moving gives you the chance to pay down your mortgage while the value of your home appreciates. The bigger the difference, the more money you’ll make on the sale.

What does this mean for your lifestyle? If you buy, you shouldn’t plan on changing locations for several years after making a home purchase, because you’ll need to stay in the same house. This makes homeownership a great choice for someone looking to put down roots, but less great if you like moving to a new location every time your lease comes up. 

Also, you should only buy a home if you have a stable career, and you plan on staying in it for a while. Banks usually prefer if you can show two years of employment in the same position to get approved for a home loan, and to make sure you stay current on your mortgage payments. So it is a good idea to not make any major career changes during the first couple of years of homeownership.

Personal finances and cost

Once you’ve decided that homeownership is a good fit for your lifestyle, it’s time to consider the costs. Buying and renting have different costs depending on the economy, housing market, and where you live — but you can always expect to spend more on buying than renting in the first year of owning a home. Remember that a home purchase is an investment. Money that you put into it you can generally expect to get back, either by eventually owning your home outright or when you sell in the future.

To buy, you’ll usually need 20% to put down for a conventional mortgage, plus about 8-10% of the purchase price for closing costs and mortgage expenses. Your monthly expenses will include the mortgage payment, homeowner’s insurance, home maintenance, utility costs, home repairs, and HOA fees (if they apply).

When you rent, your upfront expenses aren’t as high. To move in, you usually need to pay the first month's rent, the last month's rent, and a security deposit equal to one month's rent. Your monthly expenses include the rent, typically the utility costs, and renter’s insurance if you insure your belongings.

Which is cheaper? That depends on a variety of factors, including mortgage rates, the housing and rental markets where you live, and the overall state of the economy! Buying a home can result in a smaller monthly payment versus renting — but the upfront cost of purchasing a home is significantly higher versus renting.

Which is right for you? Talk to an expert real estate agent at Morley who can help refer you to a lender to help you decide.

Property customization

Want the ability to modify and improve your property at will? Homeownership is for you. When you own a home, you can paint, renovate, and update when you want, how you want. You’ll have to pay that cost, but you have total control over the outcome. Structural modifications may require a Building Permit from the Ministry of Works — but once you make the improvement, the benefits such as more space and additional home value are all yours.

Any improvement you make to a rental property must first be approved by the landlord — even small details like changing the color of the paint. Landlords may not be willing to let a tenant make changes, and if they are, they’re not likely to cover the cost. Additionally, any improvement you make will then belong to the landlord, and when you move out, they’ll enjoy the added value without having paid for the investment.

There are also pros and cons to homeownership versus renting for repairs and maintenance. As a homeowner, you’re 100% responsible for your home maintenance, and if you don’t keep up with it, your home can actually lose value. The upside? You determine when and how it happens. There’s no waiting around for a landlord to hire someone to make repairs, and you get to choose the quality of the material and who does the work.

When you’re renting, your landlord is typically responsible for repairs and maintenance on the property. You won’t have to foot the bill for a new water heater or a roof repair — but you will have to accommodate the landlord’s schedule. Good landlords will get repairs done quickly, but working around someone else’s schedule can cause added inconvenience and frustration.

The housing market

If you’ve decided to buy a house, the next thing you need to determine is if you should buy a house right now. If your finances are in order and you know that buying a home is for you, consider the real estate market where you want to live and also compare it to the rental market in that area too.

In most areas of The Bahamas, rental prices and home purchase prices have gone up in the last several years. As the inventory of more properties on the market continues to increase, we anticipate that home purchase prices may start to come down. That means it could be a good time for you to buy.

Not sure? Get in touch.