"I have acquired 5 million pesos from an inheritance. I work a 9-5 job with a net pay of approximately 40K a month. What should I do with the money?" Yesterday, I came across this post on TikTok, which supposes that you currently have this amount of money on hand. Now, way before you knew you had acquired such an amount, you have actually been thinking whether you’re financially better off renting or owning a place. To choose one or the other is a major decision. In fact, a lot of consideration should be put into your monetary resources and how you keep them going to sustain the lifestyle you want.
Most people would see ‘renting’ as an ‘expense’, and ‘buying’ as an ‘investment’. Indeed, homeownership has its perks but renting might be a better move for you this year. Who knows? Apparently, with renting, there is an outflow of money on an installment basis without return in the long run. You don’t build equity with monthly rent payments. Renting is just a monthly bill. On the other hand, despite paying a lump sum or on an installment basis when buying a house, there’s a guarantee of ownership. And this, in turn, allows homeowners to make money out of the property. For instance, either selling it out or turning it into apartments or AirBnBs. Thus, an investment.
Yet, contrary to this belief, renting does not always mean ‘throwing out money’ and owning does not always ‘build a person’s wealth’. People would opt to rent as it offers minimal responsibility and predictable expenses -- like repairs, insurances, and taxes -- and flexibility, if your nature of work requires you to move from place to place. And in some cases, if these renters have money, they would rather have their money invested in stocks, or venture into a business to keep their money flowing and going. And, perhaps, opting to buy a house later in life if they have already amassed a huge fortune.
5 Benefits of Renting
To further break it down for you, here are 5 benefits of renting according to Investopedia, that’s probably going to help you decide.
1. No Maintenance Costs or Repair Bills
One of the benefits of renting a home is that there are no maintenance costs or repair bills. When you rent a property, your landlord is responsible for all maintenance, improvement, and repairs. If an appliance stops working or your roof starts to leak, you call the landlord, who is required to fix or replace it. Homeowners, on the other hand, are responsible for all home repair, maintenance, and renovation costs. Depending on the nature of the task, it can get quite pricey.
2. Access to Amenities
Another financial benefit of renting is having access to amenities that would otherwise be an enormous expense. Luxuries such as an in-ground pool or a fitness center come standard at many middle scales to upscale apartment complexes with no additional charge to tenants.
If a homeowner wanted to have access to these amenities, it would likely cost thousands of pesos for installation and maintenance. Condo owners would need to pay monthly fees for access to them.
3. No Real Estate Taxes
One of the major benefits of renting versus owning is that renters don’t have to pay property taxes. Real estate taxes can be a hefty burden for homeowners and vary by areas —in some areas the cost can be thousands of pesos annually.
4. No Down Payment
Another area where renters have a better financial deal is the up-front cost. Renters generally have to pay a security deposit equal to one month’s rent, a deposit that will theoretically be returned to them when they move out, provided they haven’t damaged the rental property.
When purchasing a home with a mortgage, you’re required to have a sizable down payment—typically around 20% of the property’s value. Of course, that down payment results in having equity in the home, which only increases as the mortgage is gradually paid off. And once you own a home free and clear, you have a valuable investment that renters never attain.
Still, the amount needed for a down payment on a home is significantly more than a rental security deposit. A 20% down payment on a house that has a market value of PhP1,000, 000 for example is PhP200,000. The average apartment rental in the Philippines is at the range of PhP10,000 to PhP15,000 . Those who don’t have money for a down payment are better off renting.
5. More Flexibility as to Where to Live
Renters can live practically anywhere, while homeowners are restricted to areas where they can afford to buy. Living in an expensive city such as Metro Manila or Bonifacio Global City in Taguig might be out of reach for most home buyers, but it might be possible for renters. Although rents can be high in areas where home values are also high, renters can more readily find an affordable monthly payment than home buyers.
Top considerations in buying your own house
Whilst, here are some suggestions from Motley Fool Holdings, a financial advising company in Alexandria, Virginia, for you to assess whether it's ideal for you to secure your own home:
1. Do I have enough funds saved for a 20% down payment?
Most real-estate companies require a 20% down payment to buy a home. And if you don't come up with that 20%, you'll be hit with private mortgage insurance, or PMI, which is a premium that's tacked onto your monthly costs as a means of protecting your lender. PMI doesn't need to be a deal-breaker, but it will make owning a home more expensive, so a better bet is generally to wait to buy until you've managed to save for a 20% down payment.
Furthermore, paying 20% of your home's purchase price will let you build equity in your home more quickly. That's a good thing, because you may one day need to borrow against that equity if unplanned expenses (home-related or otherwise) arise. Also, making a 20% down payment lowers your chances of ending up underwater on your mortgage -- a scenario that occurs when your outstanding loan balance is worth more than what your home could sell for.
2. Are home prices ridiculously inflated where I want to live?
Mortgage rates may be low today, but home prices across the nation are anything but. Limited inventory coupled with phenomenal rates has caused loads of inflation in the housing market, so a home that was worth PhP1,000,000 in January may be listed for PhP1,500,000 today. Do some research to see how high home prices are in your target neighborhood relative to what you'd expect them to be. If there's major inflation happening, 2021 may not be the right year to buy. If that's the case, it could make sense to wait a year and see if inventory opens up, which should drive home prices down.
3. Have I considered the many costs associated with homeownership?
Owning a home doesn't mean just paying a mortgage instead of rent. It also means covering property taxes, maintenance, repairs, and homeowners insurance (which is typically much more expensive than renters insurance). If you don't have much wiggle room in your monthly budget at present, and you're not getting a giant raise in 2021, then it could pay to keep renting in the coming year and hold off on buying until your financial situation changes. This especially holds true if your job isn't as stable as you'd like it to be.
Other benefits that homeownership can offer is privacy and stability. Privacy can mostly be hard when renting, especially that there are more people in the vicinity that you have to deal with. Another is stability, rent prices may increase depending on your landlord, it can go as high as he wants to and the choice is yours if you want to stay or suffer expensive monthly rates. The endpoint is stability can hardly be acquired due to moving from one place to another. While owning a home can offer you unmatched solace, peace, and comfort. Comfort in your own abode, that you are sleeping under your own roof which can make you feel much more secure and at-home.
Bottom line is maybe 2021 is a great time for you to buy or maybe it's a bad idea due to inflated home prices, coupled with your personal circumstances. What you need to do is to weigh your options carefully before making your choice, because the last thing you want to do is give up your lease and take the leap into homeownership only to regret it after the fact.
Now there you go, Amigo. Happy new year and cheers to your new beginnings. If you like this article, don't forget to hit like and share. And if you decide to stop renting and want to own a house this 2021, give us a call, and we’ll surely provide you with a wide range of house selections that will surely match your needs. We, in Pueblo de Panay Township, have provided quality homes for Capiznons over the years. Contact us today.