Rent or buy? The real cost of a home

Nika and Jan, both 29, have found a flat for €250,000. A similar flat rents for €900 a month. Friends say, “Rent is throwing money away.” The bank says they could borrow more than they need. How should they think about renting or buying?

The price-to-rent ratio

The price-to-rent ratio is the price of a home divided by a year of rent for a similar home. For the flat: €250,000 ÷ (12 × €900) = 23.1. A common rule of thumb says a ratio below about 15 favours buying and above about 20 favours renting. It is only a first screen.

Costs that never come back

A renter’s unrecoverable cost is the rent, plus contents insurance. An owner’s are:

• mortgage interest,
• maintenance, often about 1% of the home’s value a year,
• property charges and insurance,
• the opportunity cost of the deposit, which could have earned a return elsewhere,
• buying costs and, later, selling costs.

Only the part of a payment that repays the loan builds wealth. In Slovenia, the real-estate transfer tax is 2% of the value and the seller is the taxpayer for most second-hand sales; a new building within two years of first use is generally subject to 22% VAT instead.

The result depends on how long you stay:

These numbers are an illustration, not a forecast. The lesson: time horizon, price growth and the rent level decide, and neither choice is always right. Taxes on gains are ignored. A rent-vs-buy comparison should count all costs on both sides.

Leverage, limits and non-money factors

With 20% down, a 10% price rise lifts your equity by 50%; a 10% fall removes 50%. Slovenia’s rules cap loan payments at 50% of net income and require at least €745 a month to remain after loans. These are ceilings. They are not advice: a payment you could still make at a higher interest rate, with some room left, is a better guide.

Stability, the freedom to renovate and school choices favour buying. Flexibility to move for work, and no repair surprises, favour renting. Both are legitimate.