Buy or rent?

A German study asserts that owning one's own property leads to long-term wealth accumulation as certain life circumstances and habits change and adapt. Those who decide to buy their own home acquire, in a way, an "autopilot" that guides them towards financial stability. However, this is not an easy task, especially with rising interest rates and property prices. Nevertheless, even before the purchase, prospective homeowners live differently from those who choose to be lifelong renters. If you are considering renting or buying today, you should read this article carefully.

A study conducted by the German Institute of Empirical Market Research, in collaboration with a renowned German development bank, revealed that property owners adopt a more frugal lifestyle and enjoy greater wealth and independence in old age compared to renters.

The research compared homebuyers with average incomes between 30 and 44 years old to renters in the same age group. Surprisingly, the results showed that buyers spend significantly less money on consumption expenses. They significantly reduce their expenses on dining out, leisure, and travel, among other things.

However, the real change in buyers' behavior doesn't start with the purchase of the property. The study found that this change occurs well before acquisition as part of the wealth accumulation process for property purchase. This financial discipline is crucial for most people to finance the purchase of a property.

Owning real estate has deeper implications than just consumption expenses. Owners also save more after the purchase. According to the study, owners save about three times more than renters, with owners under forty saving approximately 20% of their income, while renters save only 10% on average.

This change in saving behavior is not surprising, as property owners face the responsibility of making monthly mortgage payments to avoid losing their property. This obligation encourages buyers to save regularly. Furthermore, the monthly mortgage payment is, in itself, a form of savings, as it increases their real estate equity with each payment.

Even before buying the property, many prospective homeowners choose to save more and reduce consumption, preparing themselves for acquisition. When they make the purchase, they commit to maintaining this savings behavior.

In retirement, property owners reap the rewards of their effort and sacrifice, enjoying greater freedom and advantages compared to renters. While property owners may generally invest more money in purchasing their properties than renters spend on rent, the study suggests that, in the end, this decision may prove more advantageous in old age. In retirement, they will own a property that is already free of obligations. This means substantially lower housing costs and a higher quality of life compared to renters, whose rents and expenses increase year by year, while their retirement and pensions generally remain the same.

In summary, this study warns that property owners, in general, have much higher net worth compared to those who choose to live as renters throughout their lives, whether by choice or simply due to a lack of purchasing power.

But those who choose to acquire their own permanent home or apartment increase their opportunities for a prosperous retirement – a compelling argument for prospective buyers to consider the benefits of real estate ownership and its potential impact on long-term wealth accumulation.

In an ever-evolving real estate market, this study offers valuable insights for those weighing the decision between buying and renting. For many, it may open a new perspective on the role of real estate ownership as a means to ensure financial stability and a comfortable retirement.