Analysis conducted by real estate market analysts reveals what truly lies behind the two most popular buyer scenarios: what it means to rent and save for five years and how much can be “earned” by investing five years earlier.
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Rent consumes the amount of the down payment
Many buyers comfort themselves with the thought that they will endure renting an apartment for another five years but will eventually purchase their dream home that meets all their criteria. According to Šarūnas Tarutis, head of the real estate development company “Citus,” this is one of the biggest emotional mistakes.
“The numbers reveal a different truth – over five years of renting, the entire down payment capital that the buyer could invest in their future is given to the landlord. People often forget that the return on rent payments is exactly zero,” emphasizes Š. Tarutis.
Today, the rent for a newly built two-room apartment in a residential area of Vilnius is about 800 euros per month. Considering the usual annual rent indexation of about 4%, over five years, 51,996 euros are spent on rent. This is money the buyer will never recover and from which they will gain no added financial value.
A loan is not only an expense but also accumulating capital
What would happen if, instead of paying rent, a two-room newly built apartment worth 180,000 euros was purchased today? Such a purchase would require a 27,000 euro down payment, and the remaining loan amount would be 153,000 euros.
Choosing a standard 30-year repayment period with a 1.5% bank margin and 6-month Euribor, nearly 44,900 euros in payments would be made to the bank over five years. Although the majority – about 30,738 euros – at this stage consists of interest, the remaining 14,161 euros will be used to cover the principal loan. This money does not disappear anywhere – it is directly accumulated as the homeowner’s equity.
Moreover, the most important factor often forgotten by those waiting is the growth of the real estate market. Conservatively estimating, assuming an annual property value increase of 6%, after five years, the apartment bought today for 180,000 euros will be worth more than 240,000 euros. The increase in property value during this period alone would exceed 60,000 euros.
“The best time to buy real estate was yesterday, and the second-best time is today. While residents wait and try to save for a bigger home, the market appreciates in the long term. Of course, there are exceptional situations, periods of uncertainty, or global shocks when the market temporarily stalls, but looking at a multi-year perspective, the trend remains the same. By buying a smaller or less ideal home now, buyers make the market growth work to their advantage,” says Š. Tarutis.
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A gap of more than 82,000 euros opens up
Detailed calculations reveal a huge difference between the two strategies. Choosing to rent for five years, a person loses almost 52,000 euros during this period and ends up with no property.
Meanwhile, choosing to buy now, the buyer spends more on the down payment and installments – a total of about 71,900 euros. However, after selling the property after five years, they not only cover the remaining 138,838 euros loan balance to the bank but also keep as much as 102,042 euros in cash. This amount consists of the recovered down payment, the paid loan portion, and the property value increase exceeding 60,000 euros. After deducting all five years’ expenses, their net financial balance remains positive and exceeds 30,000 euros.
Comparing both scenarios, the total financial difference between deciding to buy now and deciding to wait is as much as 82,138 euros.
The first home is just a stepping stone to dream homes
Šarūnas Tarutis urges to view the first home not as a final destination but as a financial tool:
“After five years, selling your first, perhaps not ideal, two-room apartment, you will have a solid sum of one hundred thousand euros in hand. This becomes a perfect down payment for your real dream home. Meanwhile, the one who rented for five years will be forced to start from scratch and buy already significantly more expensive property.”
According to real estate experts, such a strategy fundamentally changes the buyer’s opportunities in the market. A person who decided to buy a smaller home today will have accumulated more than 100,000 euros for a down payment after selling it in 5 years. With such capital and bank trust, they will be able to aim for a very spacious, high-class home valued at even 680,000 euros or more in the market.
“The most important thing to understand is that the first home does not have to be a perfect place for life – it is your financial springboard, allowing you to profit from market growth and confidently move towards your dream home,” concludes the director of “Citus.”
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