Renting vs Buying. Your unrecoverable cost.
Channel: Dubai Realty
Date: 2019-06-11

Renting VS Buying a home in Dubai.

I think that everybody can agree that if your monthly payment for a mortgage is less than your monthly payment for rent and if you have money for downpayment it's a better decision to own a property.

Let's discuss the unrecoverable cost of rent:
It's a quite easy task to do because any payment that you pay as rent is an unrecoverable cost for you. Let's say you rent a property for 120,000 dirhams, it means that over five years you will need to pay around 600,000 dirhams. This is your unrecoverable cost. It's not like you are throwing this money away, you get a place where you can live, but you can't get back this money, they are gone. It's quite straight forward. 

But what is the unrecoverable cost of buying? 
When you purchase a property, you need to spend around 25% as a downpayment, and with some additional fees, it will be about 32%. 

Your unrecoverable cost, in this case, is the cost of a missing opportunity. 
You can use this money to invest in your business, stocks, funds or something else.

And this cost can be enormous, 1000 dollars invested in 1997 in Amazon could make you a millionaire by now.

This is a famous example of investment in a company's stock, but let's not forget what that there are thousands of other examples where people lost absolutely everything on a stock market. 

Even such companies as Facebook, Apple or Tesla are not performing that well now. 

So it's very difficult to choose the right company, and definitely, it's not the best idea to invest your entire savings there. 

Something similar we can say about investment in a business. 90% of companies are closed in 5 years. 

So it seems like there is an opportunity cost, but if we take a closer look when it comes to your life savings, the purchase of the property is a quite reasonable decision. 

Now let's talk about the benefits of renting or buying.

When you rent you have more flexibility and you  have the ability to move for a very small cost. So if you want to change the district, upsize or downsize it's quite easy to do. It's not that hard to do it when you own your property as you can rent it and move to a new place, but lets say that you have more flexibility with it when you are renting.

Now let's talk about buying:
 when you buy a property, you will need to pay less on a monthly basis compared to rent and you will keep on building equity in your property. In our example with the unrecoverable cost of rent you spend 600,000 in 5 years. With mortgage part of this money will stay with you as your equity.

And let's not forget that mortgage payments are going down with years and rent is usually going up.

And most people that rent end up spending their investable money on entertainment.  This is another good point to consider.

So if you are planning to stay in dubai for the next few years and you have money for downpayment I think you should buy a unit.


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