Buying vs. Renting in Espoo metro region: help me understand why renting always looks better?

12 comments

1. So you do all of that math just to prove that if you sell your house in 5y, instead of rent, its not a financially win?

   Let’s say buying is a win, everybody gonna just buy house and resell in 5y, then everybody gonna be rich and Finland gonna be richest nation in planet

   Think of buying the house to live, instead of getting profit out of it. There you go, that’s why buying is better.

   Buying car is biggest financial waste, why people kept buying?

2. I think renters also pay lower home insurance fees compared to owners, plus even in a relatively new apartment there’s always something in upkeep costs which as a renter would be covered by your landlord.

   I guess it’s possible you’ll come out on top as a renter. There are interesting numbers from Canada on [Ben Felix’s Youtube channel](https://www.youtube.com/watch?v=j4H9LL7A-nQ), mirroring your calculations. Even in Canada’s housing market, which has had exceptionally strong increase in housing values, renters win in terms of wealth accumulation, assuming they put the the money saved on total long-term housing costs (including condo fees, mortgage, upkeep, insurance, etc.) into a low-cost stock index fund.

   That’s because once *everything* is factored in, renting tends to be just a bit cheaper, and even in places like Canada or San Francisco etc. with internationally exceptional increase in housing prices, it’s ultimately unimpressive compared to the long-term return of the stock market.

   With all of the above, the critical caveat is that you MUST then put the money saved in the stock market (at low costs). Home owning can be useful for many people because it’s essentially forced saving, which people might otherwise not do despite their best intentions.

   Personally, I still prefer to be a home owner, but it’s mainly for the stability: I know my family can stay long-term in the home of our choosing.

3. Well, that’s the Espoo/Helsinki price for you 😀 I have a 87m2 apartment in Vantaa, 3 years old. If I rent that apartment, it will cost around 1300-1400 (cheapest I can find is 1200 but very old) per month in the same area. And if I buy the same size apartment in the same area, I’m paying around 1500 (hoitovastike + interest + principal). I did similar calculation when I was about to buy this new apartment, and decided to just buy it. If I want to move somewhere else few years from now, I can just rent it out.

   Next door is my kid daycare, school is about 1km, took me about 25mins to go to the center. 24/7 K-city is within 10min driving. Not Espoo/Helsinki level of living, but enough for me.

   I am not sure where you find an apartment selling for 400k but only 1k4 in rent, can you give an example of the apartment on sale and the rental one? For example, in Tikkurila, near the train station, 85+m2 apartments are going for 350k+, and rent is around 1k7-1k8 last time I checked. So the rent usually correlates with the price of the apartment.

4. We pay less for loan + building maintenance than when we paid rent. The difference? Apartment we bought is twice the size than the one we rented and it’s in a better neighborhood.

   Whether you buy or rent all depends on what you want out of your life. We wanted stability and a forever home.

5. Hi there,

   I have rented for 5 years in espoo and recently decided to buy a house.

   Your math seems to check out but rely on some assumptions. It assumes most people put all of their savings in ETFs. It’s quite uncommon, in my experience.
   There are people like me who didn’t get proper financial education and ended using low yield safe saving accounts. I ended up having quite some cash on my hands. While I corrected the past investment ignorance with passive ETF monthly saving in the past few years, I still had quite some cash waiting to be used.
   Investing everything in stocks in one go would be a safe option only for long term (over 10 years horizon).

   So in this situation, I was able to put a large amount upfront for the house and pay limited total interests to the bank. But what hits first is the transfer tax, which at 3% (even for 1st home buyer) is quite painful.
   Then you have maintenance costs, renovation, property tax… So clearly not a good investment.

   But as pointed out earlier it isn’t about making an investment, it’s about enjoying life and convenience.

   Why do people own summer cottages when they spend most of their time fixing them and paying hefty maintenance cost when they could Airbnb each summer?
   Simply people fall in love with one specific place and they are willing to invest time and money for memories there.

   Why do people own cars? It’s far cheaper to cycle or use public transport, but good luck getting to nuuksio or else in less than an hour.

   For where you live it’s the same thing.
   When you rent, there are quite many things you can not do. I was personally not inclined to buy equipment like dishwasher just for the thought of how am I going to move this to a new place (lazy I know).
   When it’s yours you can do whatever you want, accumulate your life items, extra bikes, canoe, whatever, it’s all good because it’s never going to have to go anywhere. You can change however you want, add a car ev charger, add solar panels…

   In the end, I think you are right, renting is better investment but eventually you will crave for something you can call your home base for life and there might a trigger that pushes you to buy.

   For me it was a growing family : dog, baby, wanting more children in the future, but also my landlord decided to sell the flat. When you rent you really are in a temporary position where your landlord can ask you to leave anytime, if he wishes to sell. Not so nice to move the whole tribe and it’s stuff to a new rental, only to know you would need to go anytime.

   So in my case, I was super happy to rent for a while, but a need for stability, larger place for a growing family plus cash on hand plus landlord kicking me out led me to decide buying was a better option for me now.
   Perhaps this answers your questions : why do people still buy.
   My advice would be : If you are in your 20s or early 30s, definitely rent, then use the invested money for your dream home later in life.

6. You’re probably comparing apples to oranges here. A lot of houses still have ridiculously inflated prices. Is the rent apartment in the same neighbourhood as the 400k apartment? I’m pretty sure you could buy a 55-80m2 apartment for 50-100k less in those areas.

   You also probably shouldn’t assume a static 0,50% appreciation for the apartment. It might apply in macro scale, but probably not in micro.

7. I think you have to remove the 2 month deposit from the upfront cash savings, since it is money you have to spend, but it is not generating any returns for five years. Also you need to include capital gains tax of 30%. Still renting would be better, but house appreciation rate, euribor or the yearly return on investments could change things drastically.

8. 55 square meter apartment for 400K? And why would you sell after 5 years? Comparing Matinkylä to Tapiola? Your starting assumptions are off. Also, most home buyers don’t look to “invest” in the short term, and you don’t factor in things like desirability of the area. At least in Helsinki currently there is a renters market because of the over saturation of the market with small apartments. But rest assured, the investor driven rent market will bounce back, and they will want their returns, so rents will go up at some point.

9. Yeah, it does not make sense to buy, if your plan is to live in the place only for 5 years. Buying is better for long termi, permanent living. As you say, it is for stability, and 5 years is not time for stable living, it is quite short period in housing market. Most people buy the apartment or a house to live for next 20 years or something, or they buy and when they sell, they buy a new one. Buying is not a good option for your short term flexible living.

   Also, rents can rise more than 2% per year. Maybe not now, but depending on your land lord the hikes can be 10-15%. If you plan to live longer than the couple years, it would have been better to buy as the monthly payment for the mortgage and other costs would not rise that much.

   So make a same calcultion for 30 years and use a higher precent for the rent hikes – how does it look like? Also you can’t really predict how much your property will rise on value. Historically the value of apartments has risen much more than 0,5% per year. Also people live in their places until they die s, or they buy a new one and the same price trend so the rise in the value does not matter that much in the decision making.

   So basically the result depends on the values you pick in your calculations. I’d not buy a place if I know I will sell it in 5 years unless I’d be 100% sure that the market is going up – and it is not the situation right now and actually never because you can’t know what future brings. I could buy one for 5 years if I’d have a lot of money and would really want to live in a specific place and I would be ready to pay extra for that.

10. Because real estate prices in Espoo do not appreciate if any at all.

    Save your down payment and invest in QQQ or VOO and rent.

    Source: I have bought and sold 3 houses in Espoo in the last 20 years.

11. Something you may not have considered is that when you sell your stock, you have to pay capital gains tax (luovutusvoittovero). When you sell your home (where you have lived a couple of years), you don’t have to. You can make really nice profit by buying an old apartment in a bad condition from a central location and renovating it, especially if your willing to spend your own time on the renovation.

12. One thing you should consider is that your assumed rate of return on stocks and ETF’s at 7% yearly may reflect reality or it may not; you seem to be a savvy enough person to know that, but you may want to test a few options where over 5-10 years the returns aren’t so high. I understand those are stated assumptions in your model but it’s worth pointing out that we seem to be in a pretty peak cycle of valuation right now. So your investment horizon should be longer to secure those assumed gains.

    Anyway, without excessive analysis, as a homeowner here in Helsinki, my recommendation is simply this: if your time horizon is less than 5-ish years and you know that, then renting makes sense just due to the freedom and lack of responsibility it entails. For increasing time periods beyond 5 years I think the argument of borrowing the money and buying the place, particularly in a nicer area of town, will financially make sense. I know that after 18 years in my place I am looking forward to the last payment in 5 years, at which time I will own the home outright and my monthly costs go WAY down.

    Regardless, if you buy, I would avoid the 1970’s era apartment blocks in less desirable areas because they are all due for larger renovations and the investment may not be recoverable except over a longer time horizon. if I was going to buy an apartment in Helsinki right now I would bias my search toward older buildings in nicer parts of town, and take fewer square meters for my money, to ensure that the value of the investment is more secure. Obviously I recognize that requires money but if you’re talking about 400k then options do exist. And I doubt that places located more centrally will suffer severe drops because quite simply more and more people move to Helsinki all the time and this ensures that demand in nicer areas remains high…even in these shitty economic circumstances there are people ready to pay to live in nicer areas.

Comments are closed.