In Brazilian culture, it is very common to hear the statement that, when someone chooses to buy a financed property, it is a better situation than the rent, because in this case (rent) the money would be “thrown away”, while in the financing the money is being invested in equity.
However, the reality is that, in both situations, there is no escape from rent. This is because, when hiring the property, the lessee pays the rent in exchange for the right to use the landlord’s property. In other words, the landlord, owner of the property, forgoes the use of his own property in exchange for a payment.
On the other hand, when someone chooses to buy a property but does not have enough resources, it is also necessary to pay rent.
In that case, rent on someone else’s money, who lends you enough for the purchase. The difference is that, in this case, it is not customary to name this payment as rent, but as interest. But, in essence, it’s the same thing. The owner of the money gives up its use in exchange for rent from those who will use the money.
Thus, whether in leasing or financing, there will be these rental costs, the effects of which can be quite impactful in both situations. Let’s look at a simulation, based on a property of R $ 400,000.00.
1) Property rent: it is usually considered as an average market reference that the rent corresponds to a value close to 0.5% of the property value (which is an estimate, of course, but will serve the purpose of this simulation). Thus, in our case, renting the property would require a monthly expense close to R $ 2,000.00.
2) Financing: as an example, let’s imagine full financing of the property (which, it should be noted, is not common in Brazilian practice). To finance an amount of R $ 400,000.00 over a period of 30 years (360 months), interest will be charged over the entire period, at a hypothetical rate that we consider to be 0.90% per month. Let’s see the result.
Calculation using the PRICE table
The financing would entail an obligation to pay installments of R $ 3,748.97 *, over the 30 years (not counting additions resulting from monetary correction). The detail is that of the R $ 3748.97 of the first installment, only R $ 148.97 corresponds to the amortization of the property, while the remaining R $ 3,600.00 corresponds to interest (therefore the rent of money). In this calculation method, over time, the amortization value increases, and the interest value decreases.
But see the final result: after 30 years, the financing will have cost R $ 1,349,623.19 (one million, three hundred and forty-nine thousand, six hundred and twenty-three reais and nineteen cents), with the principal financed was R $ 400,000.00 and the remainder (R $ 949,623.19) corresponds to interest accrued over the 30 years, that is, the cost of renting the money.
*: there would be a small difference only in the last installment, which would have a slightly lower value, of R $ 3,742.96.
Calculation using the SAC table
In this calculation method, the share starts larger and decreases over time. The first installment would have a value of R $ 4,711.11 (of which R $ 1,111.11 are amortization and R $ 3,600.00 are interest).
In installment number 180, the amount drops to R $ 2,921.11 (of which R $ 1,111.11 is amortization and R $ 1810.00 is interest), and the final installment, number 360, would have a total value of R $ 1,121.11 (of which R $ 1,111.11 is amortized and R $ 10.00 is interesting) – (not including additions resulting from monetary correction).
See the final result: after 30 years, in this calculation system, the financing will have cost R $ 1,049,799.60 (one million, forty-nine thousand, seven hundred and ninety-nine reais and sixty cents), of this amount, the principal financed was R $ 400,000.00 and the remainder (R $ 649,800.00) corresponds to interest, that is,
