Q: Which Is Better: Renting or Buying a Home?
Ans: Although most of us have been raised to appreciate the value of homeownership, the choice between renting and buying very much depends on a person’s financial situation, plans, and preferences. Others are better off renting, while some are cut to become homeowners.
The more important thing to consider, however, is to determine which group you belong to. After all, homeownership is a huge commitment that one must not jump into on a whim. To help you decide, we list here a number of considerations.
If you plan to live in the same city for at least five years, then buying makes more sense. Although this will leave you short in cash reserves, what you get is equity on the property, which you slowly build up through monthly mortgage repayments.
In addition, owning a home gives you a greater sense of freedom and personal achievement. Knowing that you have successfully saved enough cash for down payment and purchased a home for your family can be very fulfilling, not to mention it affords you the freedom to make changes to the property as you please.
However, with owning comes a good deal of responsibility. As an owner you need to shoulder the cost of repair and maintenance. This may be costly; for instance, the roof should be repainted every five or so years, and water pipes and plumbing should be regularly checked for leaks. The same goes with household appliances.
As an owner you are also responsible for any property taxes. If you decide to sell the property, you need to pay for the property capital’s gains tax, which is 6 percent of the property’s selling price.
On the other hand, if you plan to relocate within the next five years, then you will be better off renting a property. Not only does it save you money on closing costs, you also need not spend on repair and maintenance, as the property owner will take care of that.
There is also the housing market’s price-to-rent (P/R) ratio to help you determine whether renting is cheaper. The P/R ratio, according to Moody’s Economy.com, takes the median price of one home and divides it by the annual rent of a similar property. If the quotient is higher than 20, then it makes more sense to rent.
For example, there are two similar properties located within the same neighborhood. One is being offered for sale for Php5.5 million, while the other for rent for Php18,000 per month (Php216,000 per year). The P/R ratio of the neighborhood is 25.46, which means renting costs less than buying.
But the most important indicator whether one is ready to become a homeowner is financial stability. According to licensed real estate broker Jake Nasol Loria of Re/Max Philippines, if the would-be buyer does not have enough cash for down payment and is not qualified for a housing loan, then he or she is not ready to be a homeowner for the time being, so it’s best not to push the issue.