Rent or Buy
John and Linda have been arguing about whether to buy a house for a long time.
They have been renting a small flat for several years, and the rent keeps going up.
Last year, John wasn’t sure about his job situation, so they agreed to delay the decision.
They also invested some money in the stock market, and their investments are doing well.
Linda really wants to have a place of her own.
She is growing impatient and doesn’t want to wait any longer.
She wants to sell some of their investments and put the money into a nice house.
They delayed their decision because John was uncertain about his job.
She's growing impatient and is tired of waiting.
John is against buying now because he thinks prices are too high.
He is also worried about the high cost of living in the area.
This is beginning to make the area less attractive to companies.
Unless a company is innovative and successful, it can’t afford to do business in the area.
Salary levels have risen so quickly that companies can no longer afford to attract good workers.
Good workers won’t come unless they are paid enough to buy a house.
So many companies are relocating or moving overseas where costs are lower.
They can't afford to stay because of the high cost of living.
It makes it more difficult for companies to stay.
They invested some money in the stock market.
John is worried that once companies start to leave, housing prices will come down.
Only fools are buying now, paying prices that are probably 10 to 20% higher than they should be.
He wants to buy when prices have fallen to a more reasonable level.
Until then, it doesn’t make sense to buy.
He thinks that companies will move out of the area, causing prices to weaken.
If companies leave the area, people will lose their jobs and the demand for housing will decline.
He remembers what happened in other countries just a few years ago, when prices climbed and then fell 15%.
Many people lost their homes because they owed more on their homes than the homes were worth.
When they lost their jobs, they couldn’t pay the mortgage.
They couldn’t sell either, because the selling price was less than what they owed to the bank.
So they had to move out and the banks took possession.
Now prices are rising again so the same thing could happen again.
A cycle of boom and bust which people tend to forget.
Unless they can pay cash, they'll need to get a loan from a bank to help pay for it.
A cycle of boom and bust when an economy grows too fast, then takes a rapid fall, and the cycle begins again.
Linda has a different view.
She thinks he worries too much.
She thinks if they buy now, prices will continue to rise.
If they don’t buy now, they will miss the opportunity and regret it later.
She isn’t worried by the possibility that the prices may drop in the future.
She isn't sure, but she thinks prices will continue to rise.
She thinks they will regret it later if they don't buy now.
Another reason John is against buying a house is that he doesn’t have confidence in his new company.
It is no longer growing as fast as it used to.
Though the management talks about a bright future, he has doubts.
They say great things to keep everyone motivated, but he doesn’t trust them.
When he does a SWOT analysis of the company, he is even more concerned.
SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats.
The company's strength is based on technology that is very competitive.
But technology changes fast and what’s good now will soon be out of date.
Continuous innovation is necessary.
In the SWOT acronym, the O stands for opportunities.
The company’s weakness is that it hasn’t developed an alternative to what it has now.
Nobody is working on the next generation.
There are already signs that their technology is nearing the end of its life cycle.
There're still opportunities if the company is willing to hire new people or acquire a company with new technology.
The main threat is that other companies are spending more on research and development.
The main threat facing the company is that its competitors are spending more on research and development.
The company still has opportunities if it takes steps to acquire new technology.
So based on his analysis, the company is okay for the next year or two.
But beyond that, its future is questionable.
As a result, John doesn’t want to buy a house now and take on a huge debt.
Until he has more confidence in his situation, he doesn’t want to take the risk.
If he would to buy a house now, it would mean taking on a huge debt.
His wife thinks he’s too conservative.
She has waited long enough and she doesn’t want to wait any longer.
So John’s dilemma is how to balance his wife’s happiness against the risk of losing a lot of money.
One thing for sure is that she isn’t happy as things stand now.
She’s been waiting for a long time and he loves her.
So the decision seems clear.
John knows exactly what to do.
Maybe some flowers and a celebration?
What are they going to celebrate? The decision to buy a house.
Based on his analysis, the company's long-term future is questionable.
He has to decide between his wife's happiness and the risk of losing money.
They are going to celebrate the decision to buy a house regardless of the risks.
If you sell your home at a price less than what you paid for it, you'll take a loss.