Agathum advertisement
“February 2026. You have 40,000 euros in your account. And
the pension fund reform allows you to withdraw money from the second pillar. 10
billion euros, which were frozen for decades, are now available. Are you one of
thousands of Lithuanians who are facing the same question today: what to do
with this money?
Your parents say: “Buy an apartment! Now is a good time.”
Your friends say: “You should invest in shares!” Your partner asks: “Will we
rent for a few more years, or is it worth buying?”
We did the math with real Vilnius numbers: a disciplined
renter mathematically earns 212,300 euros, a homeowner – 91,200 euros. The
difference is almost 121,000 euros – the renter accumulates more than 2 times
the wealth!
But research shows that homeowners are significantly richer
than renters.
How is this possible? Mathematics shows one thing, human
psychology shows another.
Salience bias: why everyone is wrong about the real income
from housing
Imagine a scenario: you buy an apartment for 200,000 euros.
After 25 years, you sell it for 533,000 euros. “I earned 333,000 euros!” you
exclaim to your friends over dinner.
But this is not true.
You only see two big numbers: bought for 200 k, sold for 533
k. But you forgot: interest to the bank, constant repairs that are getting more
expensive every year, maybe the real estate tax, and, most importantly, the
lost return on that initial deposit that you could have invested in an
alternative investment. So your real return is much lower than it seems.
This psychological trap is called the salience bias - our
tendency to focus on emotionally vivid information. A large number sticks in
memory. But we ignore less noticeable things: ongoing monthly expenses, the
influence of inflation, alternative investments, the impact of crises, our own
behavior.
What does science say?
Long-term studies confirm a fundamental difference between
asset classes.
Real Estate
Research by Nobel Prize winner Robert Shiller (1890–2020)
and an analysis of 16 countries’ real estate (1870–2015) by economists Óscar
Jordà, Katharina Knoll and colleagues paints a clear picture: the historical
real return on housing is about 1% above inflation (or about 4% nominally
before inflation). Good asset preservation, but not impressive wealth creation.
Stocks
The S&P 500 and MSCI World indices over the same period
(1926–2025), including all crises – the Great Depression, 2008, COVID – show a
real return above inflation of about 7% (or about 10% nominally before
inflation).
The difference is 6 percentage points per year. Doesn’t
sound like much? Look at what happens in the long run:
in 10 years – double the return,
in 25 years – quadruple the return,
100,000 euros with a 1% real return (4% nominal) becomes
128,000 euros in real value.
The same 100,000 euros with a 7% real return (10% nominal)
becomes 543,000 euros in real value.
This is not a small difference. It is the difference between
“I can retire early” and “I will have to work until 70”.
But if the mathematics is so clear, why are owners often
several times richer than renters?
Let's look at specific typical numbers with the example of
Vilnius, then we will explain why reality is different from mathematics.
Vilnius 2026: real numbers
Purchase: what does the owner's expenses look like
50 sq. m new apartment in an average district of Vilnius –
Žirmūnai, Pašilaičiai, Justiniškės – today costs about 200,000 euros. This is
the average market price of a new apartment in such places; not in the center
(where the square meter is 5,000–6,000+ EUR), but not on the outskirts (where
it is 2,500–3,500 EUR).
The initial costs are higher than many people think.
Initial contribution: 50,000 EUR (25% – we calculate the
typical average that people choose, although the minimum would be at least 15%;
in fact, as many as a third of people buy housing with their own funds, but we
did not estimate this).
Transaction costs: 1,500 EUR (notary ~1,000 EUR,
registration ~100 EUR, valuation ~200 EUR).
Furniture and appliances: 10,000 EUR (refrigerator, washing
machine, dishwasher, sofa, bed, table, chairs, wardrobe, curtains, lamps - this
is realistically all you need, because in Lithuania apartments are usually
rented with furniture and appliances).
Total initial costs: 61,500 EUR.
Mortgage: 150,000 EUR with 4.5% fixed interest for 25 years
= 835 EUR per month. This payment is FIXED for 25 years. 835 EUR in the first
month. 835 EUR in the 300th month. Over 25 years, you will pay the bank 250,500
EUR - of which 100,500 EUR is interest (real costs), and 150,000 EUR is the
principal amount (this is your property, which returned to you through the
principal payment of the loan - the apartment became your full property,
without a mortgage).
Other monthly expenses (increased with 3% annual inflation):
utilities: 80 EUR (heating, water, garbage),
management and maintenance: 90 EUR (mandatory, cannot be
waived),
repairs: 50 EUR (on average for a new apartment - minor
repairs, painting, plumbing details, electrical repairs; although a new
apartment requires minimal repairs for the first 5-10 years, later these costs
are very real and growing),
insurance: 30 EUR (mandatory with a mortgage),
household appliances: 17 EUR (average monthly fund for
replacing large household appliances - refrigerator, washing machine,
dishwasher are replaced every 10-15 years),
renovations: 30 EUR (kitchen/bathroom renovation after 15
years).
Total: 297 EUR in the first year → 399 EUR (in 10 years) →
621 EUR (in 25 years)
Critical moment: in the first year your total monthly
housing costs are 1,132 € (835 € mortgage + 297 € other costs). With an annual
inflation rate of 3%, after 25 years, other expenses increase to €621 per
month, and the total monthly expenses reach €1,456 (€835 fixed mortgage + €621
other expenses). The mortgage payment remains nominally unchanged throughout
the period, and the growing part of the total expenses over time is no longer
the bank, but the operation of the property itself.
Over 25 years, you will spend:
initial expenses: €61,500,
mortgage (fixed): €250,500,
other expenses (growing with 3% inflation): €129,800.
Total: €441,800
After 25 years, assuming that housing prices in Vilnius will
grow by an average of 4% per year (based on data from Robert Shiller and other
economists mentioned), your €200,000 apartment will be worth €533,000. Mortgage
fully paid off. Apartment 100% yours.
Net return: +91,200 EUR, or 21% ROI.
Not bad (remember that the apartment itself is on your
consumption expenses line!), but not impressive.
Rent + investment
You rent the same 50 sq. m. new apartment with furniture and
appliances in the same location for 850 EUR per month (rent excluding
utilities). This is the average market price for such an apartment in Vilnius
in 2026. To this is added 80 EUR in utilities (heating, water, garbage), which
the tenant pays separately.
Total monthly expenses in the first year: 930 EUR (850 rent
+ 80 utilities).
Since the rent increases by 4% per year and the utilities by
3% per year (both growth rates correspond to the nature of these expenses), the
total monthly expenses of the tenant change as follows:
Year 1: 930 EUR,
Year 5: 1,084 EUR,
Year 10: 1,314 EUR,
Year 20: 1,931 EUR,
Year 25: 2,341 EUR per month — almost 2.5 times more than at
the beginning.
Total money spent on rent (including utilities) over 25
years: 459,780 EUR.
But here comes the interesting part — investing!
The critical moment: the initial payment. This is where the
real difference happens. You have the same 61,500 EUR that the owner had to
spend at the beginning (including furniture and appliances, since you are
renting a fully furnished and equipped apartment). This is not “extra” money.
This is your very important financial decision: should you use it to buy real
estate, or invest in an alternative if you choose to rent?
Then, if you invest in a very broadly diversified stock
portfolio, buying, say, the Vanguard FTSE All-World UCITS ETF (USD)
Accumulating ETF with >3,600 positions - with an expected 10% nominal
average return per year, including all crises, EUR 61,500 becomes EUR 666,602
after 25 years. This will be 91% of the total final value of your stock
portfolio. That one decision with that EUR 61,500 determines almost everything.
An additional advantage: monthly contributions
In the first year, the tenant pays EUR 930, the owner's
costs are EUR 1,132 - so a difference of EUR 202 per month. You can also invest
this difference.
But the owner’s mortgage is fixed (835 EUR), and the rent
and utilities are rising faster. After about 7-8 years, the tenant is already
paying more than the owner. After that, the difference only increases in favor
of the owner.
This means that you can only invest additionally for the
first ~7-8 years. If you invest the full difference (202 EUR in the first year
→ decreasing to ~0 EUR in the seventh-eighth), this money grows with compound
interest and becomes about 67,000 EUR after 25 years.
Nice, but that’s only 9% of your portfolio. The real game
was won or lost with that initial 61,500 EUR.
The final result
666,602 EUR from the initial deposit (91%),
67,000 EUR from the monthly payments (9%).
The value of your entire portfolio: 733,602 EUR.
Total cost: 521,280 EUR (61,500 initial + 459,780 rent with
utilities).
Return: +212,300 EUR, or ~41% ROI.
The renter’s return is more than twice that of the owner.
But here’s the thing: it’s all about that initial decision
of 61,500 EUR. Monthly payments are also important, but not critical. If you
invest your initial payment in a disciplined manner – you win. If not – you
lose, regardless of what you do with the monthly differences.
Comparison: who wins on paper?
The renter wins an additional ~121,100 EUR. This is not a
small difference – perhaps more travel, a better car and an earlier retirement.
But it’s important to understand the nuances here. The
renter can only invest the extra money for the first ~7–8 years. After that, he
pays more than the owner and has nothing left to invest. The first 7-8 years
are critical – if the renter doesn’t
use this window in a disciplined manner, the advantage disappears.
The math is certainly on the renter’s side, but here’s where
the psychology comes in—why are homeowners so much richer in reality?
How Psychology Wins: The Behavioral Gap
A 2017 Harvard University study, “A Revision of the American
Dream,” sought to answer this paradox. The researchers analyzed the behavior of
thousands of households over decades, trying to understand: if the math is on
the renter’s side, why are homeowners actually richer in reality? Their
conclusion was this: the difference is not due to higher home value growth, but
to individual choices—how much renters actually save and how they behave during
crises.
In other words, homeowners aren’t richer because they bought
homes. Homeowners are richer because their mortgages forced them to save and
protected them from their own mistakes. Home is not a better investment. Home
is a better proxy for your own behavior.
Again, it all starts with one critical moment: what happens
to that 61,500 EUR?
Disciplined investors – maybe only ~10% of people
You have 61,500 EUR. You invest in a very broadly diversified
portfolio of stocks – for example, the Vanguard FTSE All-World UCITS ETF (USD)
Accumulating we mentioned earlier.
Crises are coming. In 2008, the market fell -53%. In 2020,
COVID -34% per month. There will definitely be other crises over the next 25 years.
We don’t know when, we don’t know what kind, but they will.
Your reaction: You know the story. Since 1870, the market
has always recovered. You don’t check your investment account too often, and
during major drops, you might not even open your broker’s app. When everyone
else is selling, you stick to your plan, or maybe even buy more!
After 25 years: 61,500 EUR becomes 666,602 EUR.
Result: 733,602 EUR portfolio.
Typical person: about ~90% of people
You have 61,500 EUR. But maybe you don’t invest all of it.
Maybe you spend some of it on other things. Maybe you just keep some cash “in
case you need it.”
Discipline problem. Will most people miss a mortgage
payment? Virtually never. But delay a transfer to a brokerage account? There
will always be a reason. “I need it for a car this month.” “Summer starts next
month.” Investing becomes “when I can” rather than “I have to.”
Behaviour during crises. When the market drops -53%, you can
sell stocks in 2 seconds, with one click. And most people sell stocks at the
bottom. In 2013, the market had already risen +150%, but your money was gone.
And during every crisis, history repeats itself.
The result: a portfolio much smaller than planned. Many do
not save anything at all.
A typical person with a mortgage
You have 61,500 EUR. You spend it all: 50,000 down payment,
1,500 transaction, 10,000 furniture. The money is locked up in the apartment.
When the market is falling, stocks can be sold quickly, but
an apartment? Within 3-6 months, and during a crisis it can take even longer.
Transaction costs are a few percent. Where would you live? The bank still wants
835 EUR — you can’t postpone monthly payments.
So you just pay 835 EUR every month, as always. You don’t
think much about the value of the apartment, and after a few years it recovers.
The result: a 533,000 EUR apartment, practically guaranteed.
Conclusion: a disciplined investor will have 733,602 euros
(but discipline and cool nerves are required), the portfolio of a typical
tenant will be much smaller (because they panicked during the crisis, or maybe
they didn’t invest at all), the typical owner will have 533,000 euros (the
mortgage forced them to save).
And the lack of liquidity of real estate, which most people
call a “disadvantage”, may actually have been its greatest advantage.
Another important point that numbers do not measure
This is protection against forced eviction from rented
housing. Perhaps the strongest argument for buying: ownership protects against
housing price increases if you want to live in a particular place for a long
time (due to work, family, schools). Unexpectedly sharply rising housing prices
are a big risk for a tenant.
Realistic scenario: In Vilnius, rental prices in Žirmūnai
increased by 60% in 2015–2025. What should a tenant do who has not saved up the
initial deposit on time? Either they pay a lot more, or they move to a more
distant area, or they are pushed out altogether if their salary is not enough.
And the owner? His mortgage is fixed – rising prices are not affected, he
already owns the house.
Another aspect: certain types of houses – houses in a more
remote or forested area, houses with large areas or in more specific locations
– are simply not available for rent. If you want something more unique, you
usually have to buy.
What will you choose?
The math is clear: the disciplined investor wins. But in the
real world, owners are much richer, although residential real estate is usually
not superior to stocks as an investment. Perhaps Lithuanians love real estate
for a reason. In our culture, “our own corner” has a deep meaning. And perhaps
most importantly, housing protects us from our own impulsive decisions.
If you are a disciplined investor:
you have been investing regularly for several years,
you have an automated system,
the crisis of 2018 did not bother you,
you can look at -30% without much emotion,
peer pressure does not work?
Then rent - mathematics is on your side.
But if at least one "no" on that list - then buy.
A mortgage will protect you from yourself. After 7-8 years, your friends who
are tenants will pay more than you.
Not sure which type to attribute yourself to? Then it is
probably better to buy. Because if you doubt - 90% chance that you are a
typical person and a mortgage is created for you.
Do you have any questions or comments?
We are interested in what you think! Share your thoughts in
the comments - maybe our assumptions are inaccurate? Maybe your situation and
numbers are completely different?
About AB "Agathum"
Since 2012, AB "Agathum" has been engaged in the
purchase, sale, management and rental of real estate objects, as well as the
management of a diversified public securities portfolio.
Currently, the company manages 22 million EUR assets:
approx. EUR 18 million real estate portfolio and approx. EUR 4 million
securities portfolio.
AB Agathum has issued a public bond issue of EUR 2 million,
which is listed on the Nasdaq Baltic Exchange.
This article is intended for educational purposes and does
not constitute financial advice. Please consult a licensed financial advisor
before making any investment decisions.
Calculations based on: February 2026 Vilnius real estate
market data (Hanner, Citus, Realco, City Now market reports), Bank of Lithuania
mortgage and housing statistics, S&P 500 and MSCI World historical returns
1926–2025, Robert Shiller real estate research (Yale University, Irrational
Exuberance), Óscar Jordà, Katharina Knoll, Dmitry Kuvshinov, Moritz Schularick,
Alan M. Taylor “The Rate of Return on Everything, 1870–2015” (Federal Reserve
Bank of San Francisco Working Paper), mortgage amortization calculator with
4.5% interest for 25-year term, 4% inflation assumption for real estate prices
and rents and 3% for utility costs based on Vilnius 2010–2025 historical
dynamics and Lithuanian inflation statistics, William M. Rohe, Shannon Van
Zandt, George McCarthy “The Social Benefits and Costs of Homeownership: A
Critical Assessment of the Research” and “A Revision of the American Dream of
Homeownership” (The Joint Center for Housing Studies of Harvard University,
2017).”
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