An analysis carried out by property market analysts reveals what really lies behind the two most popular buyer scenarios: what it means to rent and save for five years, and how much you can ‘earn’ by investing five years earlier.
Renting consumes the amount of the initial deposit
Many buyers reassure themselves that they will put up with a rented apartment for another five years and eventually buy their dream home that meets all their criteria. According to Šarūnas Tarutis, CEO of the real estate development company Citus, this is one of the biggest emotional mistakes.
Susiję straipsniai
„The figures reveal a different truth – over five years of renting, the entire capital of the initial deposit, which the buyer could have invested in their future, is handed over to the landlord. People often forget that the return on rent is exactly zero,“ emphasises Šarūnas Tarutis.
Today, the rent for a newly built two-bedroom apartment in a residential area of Vilnius is around EUR 800 per month. Taking into account the usual annual rent indexation of around 4 per cent, the total rent expenditure over five years amounts to EUR 51,996. This is money the buyer will never get back and will derive no additional financial value from.
A loan is not just an expense, but also a way to build up capital
What would happen if, instead of paying rent, you were to buy a newly built two-bedroom apartment worth EUR 180,000 today? Such a purchase would require a deposit of EUR 27,000, with the remaining loan amount totalling EUR 153,000.
Opting for a standard 30-year repayment period with a 1.5 per cent bank margin, a total of nearly EUR 44,900 in instalments would be paid to the bank over five years. Although the majority – around EUR 30,738 – will be interest at this stage, the remaining EUR 14,161 will go towards repaying the principal. This money does not disappear – it is directly accumulated as equity for the homeowner.
Furthermore, the most important factor that those waiting to buy often overlook is the property market’s growth. According to conservative estimates, assuming an annual increase in property value of 6 per cent, an apartment purchased today for EUR 180,000 will be worth more than EUR 240,000 in five years. The increase in property value during this period alone would exceed EUR 60,000.
„The best time to buy property was yesterday, and the second-best time is today. Whilst residents wait and try to save up for a larger home, the market is becoming more expensive in the long term. Of course, there are exceptional situations, periods of uncertainty or global shocks when the market pauses briefly, but looking at the outlook over several years, the trend remains the same. By buying a smaller or less-than-ideal home now, buyers are making the market’s growth work in their favour,“ says Šarūnas Tarutis.
A gap of more than EUR 82,000 emerges
Detailed calculations reveal a huge difference between the two strategies. By choosing to rent for five years, a person loses almost EUR 52,000 over this period and ends up with no assets whatsoever.
Meanwhile, by choosing to buy now, the buyer spends more on the initial deposit and instalments – a total of around EUR 71,900. However, by selling the property after five years, they not only repay the remaining EUR 138,838 of the loan to the bank but also retain up to EUR 102,042 in cash. This sum comprises the recovered initial deposit, the portion of the loan repaid and a capital gain exceeding EUR 60,000. After deducting all expenses incurred over the five years, their net financial balance remains positive, exceeding EUR 30,000.
Comparing the two scenarios, the total financial difference between buying now and waiting amounts to up to EUR 82,138.
Your first home – just a stepping stone towards your dream home
Šarūnas Tarutis urges people to view their first home not as a final destination, but as a financial tool:
„After five years, when you sell your first – perhaps not-so-perfect – two-bedroom apartment, you’ll have a tidy sum of one hundred thousand euros in your hands. This becomes the perfect deposit for your real dream home. Meanwhile, someone who has been renting for five years will be forced to start from scratch and buy a property that has already become considerably more expensive.“
According to property experts, this strategy fundamentally changes a buyer’s prospects in the market. Someone who decides today to buy a smaller property will, after selling it in five years, have accumulated more than EUR 100,000 for a deposit. With this capital and the bank’s confidence, they will be able to aim for an exceptionally spacious, high-end property with a market value of up to EUR 680,000.
„The most important thing to understand is that your first home doesn’t have to be the perfect place for the rest of your life – it’s your financial springboard, allowing you to capitalise on market growth and move confidently towards your dream home,“ Šarūnas Tarutis sums up.