Should You Buy or Rent Your Home? Part 2

Welcome to Financial Fluency - your weekly guide to mastering financial English, learning how money works, and making confident financial choices.

In this issue:

• A Look at the Markets

• Should You Buy or Rent Your Home? Part 2

• Quote of the Day: Charlie Munger

• We value your feedback

• Word of the Day:

• Test Your Knowledge

• Whenever you are ready, here is how I can help you

A Look at the Markets: January - June 2025

Vanguard FTSE All-Word ETF (Accumulating)

Despite all the uncertainty and volatility due to Trump’s tariffs, the Vanguard FTSE All-World ETF is only around 2.25% down in the first 6 months of 2025. Remember that this is on the back of a very strong 2024.

iShares Core S&P 500 UCITS ETF (Accumulating)

Importantly, in my opinion, the FTSE All-World index has done better than the Core S&P 500 index. This is why my major allocation is in an all-world index.

It should be noted that both these are lower in Euros than they would be in US dollars due to the recent weakness of the dollar. Weakening the dollar was one of Trump’s aims in order to boost exports.

There will be a limit as to how low the dollar can go, in my opinion.

Should You Buy or Rent Your Home? Part 2

Contrary to popular belief, the decision is not always obvious

Last week, we analysed a €75,000 Italian apartment and found that buying beat renting by €16,660 over 10 years. Today, we're examining a very different scenario: a €750,000 apartment in Rome.

The results might surprise you.

The Fundamental Shift

In our previous analysis, buying was cheaper month-to-month than renting. But what happens when this relationship reverses? When the total cost of ownership exceeds rental costs, the maths can flip dramatically.

Let's examine this premium Rome property using the same analytical framework.

Option 1: Buy with Mortgage

Here's what purchasing finances look like:

Initial Investment Required: €150,000 down payment (20%)

Option 2: Rent + Invest

The alternative strategy:

Initial Investment Alternative: €150,000 invested in S&P 500 (assuming 10% annual return)

Monthly Difference: €4,120 - €2,500 = €1,620 less expensive to rent

Notice the crucial difference: renting is now €1,620 cheaper per month than buying. This creates a powerful investment opportunity.

The 10-Year Comparison

Let's project both scenarios forward:

Buying Scenario After 10 Years:

• Property value: €1,007,000 (assuming 3% annual growth)

• Remaining mortgage balance: €420,000

• Your total equity: €587,000

  • Property appreciation: €257,000

  • Mortgage principal paid down: €180,000

  • Plus original down payment: €150,000

Renting + Investing Scenario After 10 Years:

• Initial €150,000 investment grows to: €389,000

• Monthly savings of €1,620 invested over 10 years: €340,000

• Total investment portfolio: €729,000

The Verdict

Renting + investing wins by €142,000 over 10 years.

This is a complete reversal from our small Italian apartment analysis. The maths doesn't just favour renting slightly—it crushes the buying option.

Why Such a Dramatic Difference?

Warren Buffett often emphasises the power of compounding. In this Rome scenario, we're compounding returns on both:

1. The €150,000 down payment

2. The €1,620 monthly savings from lower housing costs

Meanwhile, the property appreciates at 3% annually, still below our assumed 10% stock market return. Additionally, the figures would change significantly if you expect an increase in property price inflation.

Your Numbers Will Differ

This analysis uses specific assumptions that may not match your situation:

• 4% mortgage rate

• 3% annual property appreciation

• 10% stock market returns

• Specific maintenance and tax costs

• €2,500 monthly rent (which varies significantly in Rome)

It is important to consider other factors. For instance, many people value the security of owning their own home. However, in this case, there is a clear opportunity cost of choosing to buy over renting.

The Key Insight

The crucial lesson isn't that renting is always better than buying, or vice versa.

When ownership costs exceed rental costs, investing the difference can be extraordinarily powerful. When rental costs exceed ownership costs, buying often wins financially.

In expensive markets like Rome, the financial case for renting can be compelling. In more affordable markets, buying often wins. The decision depends on your specific numbers, not general principles.

Most importantly, this framework gives you a way to think about the decision systematically, rather than relying on conventional wisdom or emotional arguments.

As always, none of this is financial advice. Everyone should invest according to their personal circumstances, risk tolerance and financial goals.

Quote of the Day: Charlie Munger

This explains why renting might beat buying if the difference is invested. This is, you're not interrupting the compounding process.

We Value Your Feedback!

Your opinion helps us improve and lets you suggest topics or ask Business English questions for future issues.

Word of the Day: Opportunity Cost

Opportunity cost - noun - the value of the best alternative that must be given up when making a choice; what you sacrifice by choosing one option over another.

Context and Usage: Opportunity cost is fundamental to all financial decisions. It's not just what you spend, but what you could have gained by choosing differently. Every choice has an opportunity cost - even doing nothing.

Note: Opportunity cost isn't always monetary. It can include time, experiences, or other benefits you miss by choosing one path over another.

Common Collocations:

Hidden opportunity cost - costs that aren't immediately obvious
The hidden opportunity cost of keeping cash in a low-interest account is the investment returns you miss.

Calculate opportunity cost - determining what you give up
Smart investors always calculate the opportunity cost before making major financial decisions.

High opportunity cost - when the alternative would have been very valuable
Keeping money in savings during a bull market has a high opportunity cost.

Opportunity cost of capital - returns you could earn elsewhere
The opportunity cost of capital for this property investment is the 10% we could earn in the stock market.

Business Example: The entrepreneur realised the opportunity cost of expanding the factory was the digital transformation project that could have doubled online sales.

Property Context: In buy vs. rent decisions, opportunity cost includes not just the money tied up in a deposit, but also the potential returns from investing that money elsewhere, which is often the decisive factor in expensive markets.

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Disclaimer:

This newsletter is for informational and educational purposes only and should not be construed as financial advice. The information contained herein is generic and does not take into account your individual financial circumstances. You should always consult with a qualified financial professional before making any investment or financial decisions.

Additionally, the authors and/or publishers of this newsletter may hold investments in securities or other financial instruments mentioned herein. These are included for illustrative purposes only and should not be taken as a recommendation to buy or sell such securities or financial instruments.