Should you rent or buy a home? The numbers to look at
Comparing rent with the monthly loan payment is lopsided. What to compare is your net worth under each choice after the same number of years.
Short answer
There is no one answer. Buying tends to win when you stay long enough, prices are not too high relative to rent and loan rates are moderate; renting tends to win for short stays or when prices are many times a year’s rent. How long you stay is the strongest factor.
This article is for general information, not financial, investment or legal advice. All figures are rounded illustrations; your situation may differ.
The price-to-rent ratio
An illustration: a home priced at VND 3.00 billion rents for VND 10 million a month, or VND 120 million a year. The price is 25 times a year’s rent, a rental yield of about 4.0% a year. The higher this ratio, the cheaper renting is compared with buying.
Owning costs more than the monthly payment
Putting 30% down (VND 0.90 billion) and borrowing VND 2.10 billion at 10% a year, the first year’s interest alone is about VND 210 million — more than a year’s rent. The down payment kept at 5% would earn about VND 45 million a year; buying gives that up.
The buyer gets back the principal repaid and any rise in the home’s price. But price growth is a forecast, not a fact — change that assumption and the conclusion changes with it.
Compare net worth at the end
A fair comparison: over the same years, the buyer ends with the home minus the remaining loan; the renter ends with the down payment and the monthly difference invested. Whichever ends with the higher net worth wins under your assumptions.
Work it out for your own situation
In Verdant you enter your own family’s numbers and see the result update right away.