• Rafaella Galardo

Renting a house is the same as “throwing money on the street”

Many are those who are not even considering renting a house. For these, it is “throwing money into the street”. Maybe not so. For many Portuguese, renting a house is the same as “throwing money on the street”. It's not even a hypothesis. It is not an alternative to buying a permanent home. The rent is 100% cost, 0% recoverable. Logo, renting a house only means outflow of money, that is, outflow of money. I spend money without any form of recovery. In the case of purchases, there is always a possibility of even generating added value in the future. And this will offset the costs related to acquisition and ownership: IMT, Stamp Duty, IMI, maintenance, condominiums, etc.

Property versus Lease In fact, Portugal is a country of owners. Eurostat data for 2019 indicate that 73.9% of the Portuguese population owned the house they live in, slightly above the European average. It has been that way for the last few decades. The figures available at INE show a preference for property since the 80s of the 20th century. If in 1981, around 57% of classic family members of habitual residence were occupied by owners, this figure rose to 73% in the last censuses of 2011. Renting a house in Portugal is a difficult task. A virtually non-existent market, with very little supply and completely inappropriate policies. Put together difficult legislation and poorly regulated taxation, control abundant and cheap credit and all the spices are ready for purchase. And it's not from today. It has been around for many years now.

The notion of opportunity cost Most forget the notion of opportunity cost. Buying a house has the cost of not making available the money invested, which will not have a periodic return, in an alternative that may have it. If, instead of investing 100,000 euros in my own home, I look for an investment that guarantees me some return, and with that return pay the rent (or part of it) from a lease, I fulfill two goals: invest capital, get a return on that investment and have a permanent housing (in this case, leased). It is true that the purchase of a permanent home, despite being for personal use, is also an investment. Perhaps the biggest investment that any Portuguese make throughout his life. And as an investment, it has to provide a return, a return that should not only be measured by personal satisfaction through use.

And buy on credit? Many also look exclusively at the money paid in a bank installment, comparing that amount with the amount spent on an income. As in Portugal the vast majority of rents are higher than the installment paid to a bank for the purchase, the answer is automatically found. In fact, it might not be exactly like that. It is necessary to count, from the outset, on the purchase tax. In fact, for houses of a certain value, already higher, just the cost of the IMT in the purchase would pay a few large months of rent. Not to mention, of course, the possibility – which always exists – of devaluing the house you buy. And in this case, the loss will be future, only at the time of sale, which loss may even be higher than the amount paid in rents in the same period of time. Above all, do math! It's really important to know how to do the math. Both by comparing the cash flows between the property and the lease, as well as the opportunity cost of the purchase. And the decision between buying or leasing, in reality, is not limited to the numbers. It is a financial decision, of course, but there are also other factors of a more qualitative nature that should also weigh on the final decision. But that will be for a next article. Good deals (real estate)!

fonte: doutor finanças

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