Whenever someone thinks about investments, one of the things that pops up in everyone’s minds is real estate investment. Whether you are a seasoned investor or a novice, investing in real estate is bound to cross your mind. If you grow up in Bahrain, or just about any part of the world, most people grow up with aspirations of owning a home at some point of time in their lives. As a matter of fact, many people are taught to have home ownership as one of the important goals of their lives. However, buying a home isn’t the most ideal scenario at all times. If you live in a given city and plan to live there for a long time, then it’s a good idea to buy a house. However, if you want to have more mobility because your job is not fixed and you do not have a fixed income, it may be wiser to rent. In this post, we will discuss more about this critical investment step in your life. Let’s get started.
Should You Be Investing In Real Estate?
A lot of people say that if you rent, you make someone else rich. You are paying someone else’s loan. Instead of investing in real estate that will be yours, you throw money out the window. However, that isn’t always the case. If you buy an expensive house in Manama with a sky high mortgage, your normal source of income won’t be able to supply you with enough money. So you will have to work overtime or get a second job. In this situation, you will have a house to live in, but that piece of real estate will also be a black hole that swallows up all of your life’s savings and income.
Do you have the money to invest in real estate?
Consider the cost of leasing versus buying. If you live in any of the major cities of Bahrain, you know that real estate prices can be very expensive.
You may not be able to buy at all with your current income. It may take years, maybe even decades, before you save enough money for just the down payment. And after that, making the monthly mortgage payment is a stretch.
In this case, there is too much risk involved. If you can barely afford the mortgage payments, an emergency like a leaky roof could land you in major financial trouble.
In this case, don’t buy, rent.
Compare renting costs before buying
In a city like Manama, housing prices are so expensive they say you need over 100,000 BD to buy property there. Mortgage payments and property taxes will be so high that maybe you’re better off renting and buying later when you have more savings.
You may be wondering if you can buy property and make money off of it to help with your mortgage payments. In this case, you will be a landlord renting a property. Next, you need to decide how much you will charge the tenant to cover your mortgage. If the rent you receive is not enough to cover your mortgage payments, you will experience something called negative cash flow.
Many real estate investment properties actually have a negative cash flow. You can calculate this. If your monthly mortgage payment is 2500 BD and you rent the house as a landlord for just 2000 BD, you lose money. Every month the tenant lives there, you lose money. You can raise the rent, but you can also lose the tenant who doesn’t want to pay more.
What you count on is that the property appreciates in value over time, so by investing in real estate, you get your investment back when you sell it.
If you look for a apartment for rent in Bahrain, you’ll definitely save (more than) a few dinars. You don’t need to pay a down payment, so you can rent a place that is not very nice but saves you money. You can use that money for something else, perhaps starting a business or developing a side business that you can afford to buy in the future.
If you are still learning skills, think twice before buying
Maybe you just graduated, maybe you started your own business. You are trying to find the ideal place for your career, your strengths, your development. You never know because there may be an opportunity in another city and then you will have to move.
In this case, we recommend you to rent the flat because you want to be mobile. You want to be flexible, especially if you can save the down payment on real estate and invest in yourself.
Or, if you’re an entrepreneur starting a business, invest that amount in your business so you can grow it. When this business makes you more money, consider buying it. But for now, hire if you’re still earning and still learning.
If you are stable and rooted in a place, buying is a good option
Let’s say you are close to or over the age of 30 and have a stable career with a good income. You do not expect to change your employment status anytime soon and you will not be moving from the city you plan to live in. You can afford to buy a house in a good neighborhood and you still have money left after you buy it. In this case, you can buy a house, especially if your mortgage does not exceed 25% of your monthly income.
If you have a significant other and you and your spouse are working on this purchase together, you may be thinking about how much you can spend on a home. If you both have a reliable source of income from a business or business you work with, you should buy it. Buy it if you are starting a family and want to have a place where you can watch your kids grow up.
It’s best to not buy a house if you are a new entrepreneur
Entrepreneurs like to take risks. So do investors. The difference is that investors only invest money in an opportunity or business, whereas an entrepreneur invests in ideas, time, passion and in some cases money in a business.
If you’re an entrepreneur or business owner, you want to look at your home as a savings plan, not an investment. Your primary residence is your savings account. If you look at it from this perspective, it is a mandatory savings plan for you. That’s why you still have money in your savings account should your business experience financial ups and downs. You don’t bet on everything you own.
If you stop paying off your mortgage, you’ll hit the streets very quickly, but somehow, as an entrepreneur, you’ll be creative enough to find the money. Every month, you deposit money into your mortgage, into your savings account, in case something happens to your business. It’s a bit of a buffer, so at least you have some equality.
Entrepreneurs are sometimes overly optimistic. They think everything will be fine, everything will be fine but sometimes you never know. So, if you are an entrepreneur, buy the house that will be your savings plan.
Should you buy if you succeed financially?
If you are stable and financially successful, buy it. When you have your own home, it has a psychological benefit.
Knowing you have a place, you can design the house just the way you want it to maximize your productivity. At the same time, your home is your sanctuary, your primary residence. But it’s not an investment.
If you are financially successful, don’t spend more than 20% of your net worth on that primary residence. Some might say up to 30%. So how do you calculate this amount?
Let’s say your net worth is 2 million BD. You should not spend more than 400,000 BD on your primary residence because your home is not an investment. You are not buying because you intend to make money by selling your house. So you spend 20% of your net worth on a house and use your extra money to buy more investments like real estate.
You should spend a small percentage of your total net worth on your primary residence. That could be your home with your sauna, massage chair, home theater, library, and gym. When you design the ideal home for yourself, you should gather everything in one place. It’s where you should feel comfortable and recharged.
A quick checklist to help you decide whether you should buy a house or not
- Can you afford this? No = rent
- Is it cheaper to rent or buy? Not enough savings = rent
- Should you buy it if you’re still learning? Not fixed in life = rent
- Should you buy it if you are a resident? Enough savings = buy
- Should you buy if you are an entrepreneur? You have a savings account = buy
- Should you buy if you are financially successful? Property is 20% of your net worth = buy
Your home should not harm you financially. Also, it should never be a dream you can’t reach. You can own a home as long as you make wise decisions about your finances and investments.
Visit NorthernSky to find flats for rent in bahrain.
