Rent or buy
First, take an excel spreadsheet in front of you, I’ll show you how to calculate.
The goal is to take into account all costs that can be planned, and for those that cannot be planned, some flat cost should be estimated.
So let’s assume that the purchase is at all possible, which means that our Councilless Tamás has approx. 30 percent self-sufficiency, the rest would be covered by a bank loan in case of purchase. In fact, this is how you can only choose between renting and buying. If you don’t have the self-sufficiency, then buying is not a real option, then by definition you need to find the best rental construction.
The apartment that our protagonist (Tamás) looked like to himself is a two-room apartment near Budapest, but not in Budapest, with a purchase price of HUF 27,300,000 and a rent of HUF 120,000 per month. The apartment is an approx. Located in a 10-year-old housing estate, you don’t have to expect a major renovation in the next 10 years.
Before you get started, you should choose a term. Since you can take out most bank loans with an interest period of 5, 10 or 20 years, it is worth choosing the term to adjust them as well, in order to simplify the calculation.
Version “A” (or version 0), i.e. if nothing happens, Tamás does not buy an apartment, but continues to rent.
1) rent (HUF 120,000 per month)
2) at the end of the rental period Tamás agrees to paint the apartment: HUF 50,000 / one time
3) half of the notary’s fee upon moving in, HUF 21,000, which is also a one-time occasion
Calculate the expenses for the 5/10/15 or 20 year period selected above. Consider the one-time fees per lease so that the tenant is likely to move every 2-2.5 years, so if e.g. If you think about a 5-year term, you’ll pay half the notary fee twice and the painting fee twice.
If we add up the above: (60 months * HUF 120,000 + 2 * 25,000 paintings + 2 * 21,000 notaries): HUF 7,292,000. This is the cost of renting, you have to continue renting the apartment somewhere after the end of the period, and of course you have the increases the value of money saved with interest.
1) the equity (HUF 27,300,000 * 0.3 = HUF 8,190,000) remains invested with Tamás, as he collects for housing, does not play a casino, so he invests in government bonds. Annual yield 5%, ie 409,500 HUF / year, or 34,125 HUF / month.
This is a relatively nice amount per month, but unfortunately it is not worth counting on because the annual return is roughly equal to the annual inflation. You know, official inflation is only 1 percent, but it refers to the average, but we are not average people 🙂
So in this case, you’re better off not reviving the yield on the bond, otherwise after five years you’ll have to sadly state that the money you owe on the bond is only 25 to 30 percent less than when you saved.
Common costs and utility bills are not included in the calculation. You don’t have to complicate the calculation with these, we assume that these consumption will be the same in both cases.
Version “B”: home purchase
Upon purchase, the following items arise:
1) we start with the largest item, which is not the purchase price but the interest paid to the bank for the bank loan.
What do you need to consider here?
The first tried-and-tested bank calculator shows exactly what the loan is for a 20-year loan with a 5-year interest rate reversal.
total loan fee ratio (4.4%)
initial cost of the loan (HUF 50,000). I did not count on discounts here. If you agree to transfer your income to that bank, you will receive an additional 0.2% interest rebate, which will also lower your APR by the same amount.
Also, staying at this bank is also a one-click access to the loan repayment table. Make sure you take the interest payment into account in the repayment table. This remains the example above, so the interest repayment is:
Year 1: HUF 802,000
Year 2: HUF 775,000
Year 3: HUF 747,000
Year 4: HUF 717,000
Year 5: HUF 687,000
total: HUF 3,728,000
The value of the tax payable on residential real estate is 4%, it is imposed by the tax office in a decision 1-2 months after the signing of the sales contract, and the check is sent. Deferment of payment may be requested. There are discounts, but we don’t count on them now. The fee to be paid:
3) a lawyer
Fee for the sale and purchase agreement of the above apartment: HUF 130,000
4) Renovations, repairs, maintenance
The apartment in question is almost 10 years old, so we do not expect major renovations and maintenance. The boiler is inspected once a year (HUF 15,000 / occasion), the roller shutter must be replaced twice (HUF 2 * 10,000), the tap is replaced by the owner.
5) Renovation fund
The tenant does not have to pay for this, the owner does. The residential park in question is new, the renovation fund for this apartment is 700 HUF per month, in total (60 * 700) = 42 000 HUF
It’s not true that you don’t have to spend on an apartment, just not constantly. So the owner can postpone the renovation for years, but sometimes he just has to spend on his own apartment as well. The tax office allows 2% of the purchase price to be accounted for as depreciation (in principle, this should be offset by a continuous renewal). Its value is HUF 546,000 per year. Honestly, I consider this high.
The plan is for Tamás to sell the property after 5 years of ownership, I consider it impossible for him to spend more than half a million a year on the new, already air-conditioned, furnished kitchen apartment. In 5 years there will be no bathroom renovation, no kitchen replacement, there will be a plastering + painting when moving in, for 150,000 HUF.
7) final repayment fee
The loan after 5 years is approx. HUF 16.5 million, of which the final repayment fee is 1%, ie HUF 165,000.
8) cost of reselling a flat:
Tamás advertises the property independently, so only the cost of advertising is incurred, which is the advertising fee for 4 months, 2 * 20,000 HUF = 40,000 HUF.,
Of course, the line can be continued with any additional items, the starting items are above.
In the end, adding the two versions together shows which one is better worth it in the medium term. Note that the cost of the purchase is significantly discarded by the fee, but the fee can be carried forward later in the form of a fee discount.
Maturity is also important for the final result of the calculation:
– the shorter the term you choose, the less worth the purchase due to the fixed costs;
– the longer the term you choose, the more worth the purchase: the one-time costs have already been paid, the interest is numerically lower and lower towards the end of the term.
What’s more important:
a) what do you expect in terms of property prices. If you increase => it strengthens the purchase, if you think you deduct it from the cost, how much increase you expect on the purchase side.
Regarding the purchase price
Technically, you borrow a forint value and exchange it for a property value. Practically at the moment of exchange, the two values are equal. Since this value is significant (as I wrote above, 70 percent of the total purchase price is lent), it doesn’t really matter how the exchange rate of these values changes in the future.
If the value of the property increases above inflation, or the interest rates of the forint rise, you have done well, if the value of the property taken from the borrowed money stagnates or may decrease, you will get out of business badly.