In the real estate market, the decision to buy or rent a property is one of the most important that can be made in a person's life. From a financial point of view, it is essential to consider different factors to make the most appropriate decision, such as interest rates on mortgage loans, market prices, the opportunity cost of investing money in other types of assets, and stability. Buyer's or lessee's finances. In this article, we will analyze whether it is better to buy or rent a residential property in Mexico, assuming that you have the capital to pay cash for said property.
When you have the capital to pay cash for a property, the need to pay interest for a mortgage loan is eliminated. In this sense, the purchase of a cash property is a long-term investment, which generates stability and financial security.
Suppose you have a capital of 2,500,000 Mexican pesos to buy a residential property for cash. In Mexico, the average price of a house in a residential area is 3,000,000 Mexican pesos. If you decide to buy a lower value property, say for 2,000,000 Mexican pesos, you would have a remainder of 500,000 Mexican pesos that could be invested in another type of financial asset.
Buying a property with cash has some advantages, such as the elimination of the costs associated with obtaining a mortgage loan, the elimination of the risk of not being able to meet the monthly payments and the possibility of obtaining a discount for paying in cash. .
In addition, when you buy a property with cash, you have the freedom to make improvements to the property without having to worry about the approval of the bank or the financial institution that granted the mortgage loan.
However, there are also some risks associated with buying a property for cash. For example, the value of the property may decrease in the future, which could result in a financial loss. Also, in case of financial emergencies, a home-secured line of credit cannot be obtained.
On the other hand, the option of renting a property also has its advantages and disadvantages. In the case of rent, you do not have to face a capital expense as high as that of buying a property. Rent payment is made month by month and may be easier for many people to assume.
Suppose you decide to rent a property instead of buying it. In Mexico, the average cost of renting a house in a residential area is 15,000 Mexican pesos per month. For one year, a rent of 180,000 Mexican pesos would have to be paid.
The cost of renting a property also depends on how long you plan to live in the property. If you plan to live in the property for many years, the cost of long-term rental could exceed the cost of buying a property.
On the other hand, the opportunity cost of renting would be 100,000 pesos per year (180,000 rent minus 80,000 return on investment).
If the person decides to buy the property in cash, they would have to pay the million pesos in one go. Although he would have no mortgage expense, he would still have to pay the taxes, insurance, and other costs associated with the property. If we assume that these costs amount to 20,000 pesos per year, then the total annual cost would be 20,000 pesos.
However, if the property is in a high-demand area and the person decides to rent it out, they could earn a rental income of, say, 25,000 pesos per month. This would translate into an annual income of 300,000 pesos. If we subtract the annual cost of 20,000 pesos from the annual rental income of 300,000 pesos, the annual net income would be 280,000 pesos.
In this example, the person would have an opportunity cost of 100,000 pesos per year if he decides to rent instead of investing, but he would also have an annual net income of 280,000 pesos if he decides to buy and rent the property. Although the property may require some maintenance and repairs, the net income of 280,000 pesos is still significant and can be used to generate more income or save in the long term.
Of course, each situation is unique and many factors must be considered before making a decision on whether to buy or rent a property. It is important to assess the long-term costs and benefits, including the opportunity cost of investing the money elsewhere, the expenses associated with the property, and the potential for additional rental income.
In summary, although buying a property with cash may seem like a great investment, it is important to analyze the long-term costs and benefits before making a decision. If you decide to buy a property, you get the security of having your own home and the possibility of saving in the long term, as well as the possibility of generating additional income through rent. However, if you decide to rent rather than buy, you have the option of investing your money elsewhere and potentially earning higher returns. Ultimately, the decision to buy or rent a property must be based on a careful evaluation of the long-term costs and benefits.
