There are three common approaches to real estate:
- Rent a flat/house.
- Buy a flat/house to live in.
- Buy a flat/house as an investment.
Apparently they have their advantages and disadvantages. I will try to list them and explain why I prefer one or the other.
What is important to me:
- Low risk/stability
- Financial gains
- Diversification (investments)
Rent a flat/house
- You don't have to worry about maintenance. If something breaks, you just call the owner, and he will manage it.
- You can move easily. If you don't like the place, you can just move out.
- You don't have to worry about the real estate market. If the prices go down, you don't care. You can just move out and rent somewhere else.
- Regulations might keep rent prices down.
- Developed world prefers renting. Not that it's a good argument, but something to think about.
- Can't do anything about the place. If you want to renovate, you have to ask the owner.
- Owner can kick you out. If he wants to sell the place, you have to move out.
Buy a flat/house to live in
- You have to do maintenance, pay taxes, do shared renovation in flat, etc.
- You can not move out easily. If you don't like the place, you have to sell it. Annoying neighbors? Good luck.
- You have to worry about the real estate market. If the prices go down, you might be stuck with the place.
- Force major (floods, tornado, ...) might ruin your place. City/state can increase taxes.
- You can do whatever you want with the place. You can renovate it, paint it, change the layout, etc.
- You can't get kicked out. You can stay there as long as you want.
- You pay mortgage, that is similar to rent. But after 30 years, you own the place - nice for retirement.
Buy a flat/house as investment
- Depending on economy cycle, you can get a place with 0 or low down payment. Same for interest rate.
- If calculations make sense, rent might cover mortgage and maintenance. With some effort, you can get a house in ~30 years with minimal financial input.
- Effort or maintenance might be too much for you. Bad tenants might ruin your place. You might need to contribute/pay rent on low occupancy.
What do I prefer?
I prefer to start with a flat/house to live in. Most important for me is quality of life, so after a house, I can start with investment properties.
Why not rent? I don't think I require moving often. I prefer stability, and having a house in my name gives me that. I don't like the idea of owner kicking me out or raising rent to the limits. I know how hard it is to get by for current retirees, and I know that it will be only harder. While housing is one of the highest living costs, it might be a game changer in retirement.
As far as investments go, I prefer stocks. But as I want to diversify, real estate is second-best investments in my opinion. Using leverage only makes it much more attractive. I don't like the idea of being a landlord (people problems), but hopefully there will be a management company to take over that part.
House to keep living costs low?
With higher initial investment, I think house can actually help with living costs. By investing to passive home, there might be no need for heating, and with solar panels, there might be no need for electricity. House does provide that, land for growing food, and space for animals and solar panels for electricity. Excess electricity in the summer can be stored in most electricity providers and used in the winter. With enough solar panels, even electric car can be charged for free.
That is the theory, we will see how it works in practice.