Buy or Rent?

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Buying and leasing have different charges and commitments. In Portugal, there is a generalized culture that it is better to buy than to rent, because when buying, you are depreciating the value of the house and not “throwing money away”. Now this is only partially true.

If you have the capital for the entry stopped in the bank, it is preferable to buy. As a general rule, if you don’t have a better allocation for your capital that gives you a better interest rate than the rate you will pay for your loan, it’s best to buy.

However, if you have a more active investor profile and want to take care of your financial future, you may want to consider investing in and renting the house you live in. But this question I answer in the next question.

For now, we are going to focus on the “cash-flow” accounts that most Portuguese people do, the pocket accounts for incoming and outgoing money, or monthly expenses. In this simplified view, which is preferable: to rent or buy?

For this purpose, I created the table on the next page that analyzes the purchase and lease charges, namely:

  • Purchase: interest and tax on the use of credit (ISUC), insurance, installment payable to the bank, and initial charges – IMT & Stamp Duty, deeds (2 are required for purchase with credit), IMI payable annually and the condominium. The costs related to the maintenance of the house throughout its life cycle are not included (for simplicity);
  • Income: in the rent mode, the costs are just the rent, since the other costs are borne by the owner.

The values shown for purchase and rent are the average values for a 3BR in the various parishes of Lisbon.

Based on this analysis, we determined the gap between the lease and purchase value. The top 3 of the parishes where it is best to rent are Santo António, Avenidas Novas and Campo de Ourique. On the other hand, the top 3 where it is preferable to buy are Marvila, Penha de França and Olivais.

Comparative table of charges between purchase and lease

The table in the following figure compares the charges between purchase and lease, and the last column shows the percentage gap: negative sign means that it is preferable to lease than to buy and vice versa.

Comparison between buying and leasing
Comparative table between purchase and lease charges

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