- An Overview of Renting or Owning a Home
- The Housing Checklist
- Owning: Investment vs. Prestige
- Renting: How it Works
- What’s the Best Option?
Renting or Owning: A Brief Overview
The debate about renting or owning a home is one age-long argument that never seems to die. Interestingly, some blogs are even created solely for this debate. Honestly, we aren’t so surprised as it’s one that doesn’t really have a one size fits all answer. In this article, we’ll take the argument from both sides and give you enough to make the best-fit decision.
When we asked the question about building a house as a financial investment on Twitter, over 700 people responded. 77% of the respondents went in favour of building, and about 23% went against building a house as a good financial investment. The results are shown below.
It starts with the context: Why do you want a house?
Did you notice that there was some context to our question? We asked if building a house was a good investment. The reason for choosing to own a house plays a dominant role in determining if it’s a great choice or not. Therefore, it is important to answer the question, “Why do I want to own a house?”
While you think about it, let’s walk you through a survey on why some people want to get their own houses. In 2011, the Fannie May Housing survey found out that the top three reasons for house ownership were not money-related. Surprisingly, they were psychological reasons:
- A good place to raise my kids
- A place that feels safe
- More space for my family
Even though this research was carried out in the United States, we could find evidence of shared sentiment in the replies to our poll and other Nigerian conversations about the debate. However, renting or buying, you should answer these questions before making a choice:
- How far will your house be from work
- Do you have relocation plans? If yes, how soon?
Answering the first question will help you quantify the additional costs of stress and transportation that come with the location of your house. For example, building a house 2 hours away from work when you can afford to rent one 15 minutes away might not be a brilliant choice.
The second question will help justify the building costs in particular. If you build a house and have plans to relocate within a year, will it be wise to build and rent it out later? Or will it be better to put it under the watch of a housekeeper and make it a family house you can always return to? Finally, won’t it just be better to rent and invest your money in other investment instruments?
Owning for Rental Yield vs. Owning for Prestige
If you finally settle on owning a house, once again you have to understand why you want one. On building for rental yield, that is returns on your housing investment paid as rent, it is important that you view it as a long-term game. Currently, rental yields for residential properties in Nigeria sit between 5% to 6% per annum. [Source: Business Day, Nigeria]
Those returns don’t seem appealing? Then you might just want to consider investing in other investment products. Alternatively, you can commit to furnishing the house fully and setting it up for short-lets. That way, you can make some more yield. However, commercial properties generally outperform residential properties.
On the other hand, if you are building for prestige you should consider the two questions we asked earlier - distance from work and relocation plans. To add to those, some suggest that you consider house ownership as a possible retirement plan. For example, if you hope to retire by 45 you can start building/paying for the house when you are 35 or 40. This will give you ample time to spread costs and build/pay at your pace. Finally, you can consider putting up a part of the building for rent for some extra income when you move in.
All for Renting? Here’s a Short Guide
Owning a house still doesn’t appeal to you? We’ve got you covered. Ideally, it is suggested that you do not spend more than 25% of your annual income on rent. So, just before you take that offer you might want to put that into consideration for negotiations.
Check this guide: A better way to pay your rent
However, be careful not to be kobo wise and naira foolish. If you find a place that falls within that range, and transport costs are crazy, you might want to reconsider. So, pay attention to both rental and transportation costs. Thirdly, if you are single, you might want to consider shared rent. Sharing rental costs can save you so much, providing you with free cash to invest.
What’s the Best Option?
In the words of Christina Majaski, a personal finance contributor with Investopedia:
Which option is best for you isn’t just about money, it’s also about comfort and your vision for your life. Ignore people who tell you that owning always makes more sense in the long run, that renting is throwing away money. Life circumstances are too varied to make blanket statements like that.
Whatever option you choose to go with, based on our tips, you should take advantage of our Housing Life Goal plans. They help you contribute gradually to plans with a minimum lock period of 1 year. That way, you enjoy 100% discipline with stashing up funds for either rent or owning your house.
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