Renting or owning: Which is best for you?

  

Abiodun Doherty
| credits: File

There are times when owning a property is better than renting and there are times when renting a property is better than owning one. How do you determine which is best for you?

It is important to note that every person’s situation and circumstance is unique because our individual goals, resources and aspirations combined with  unique sets of opportunities and challenges make a decision, such as this, equally unique.

The general belief is that owning a property in all cases is cheaper. It is assumed that annual rental increases and associated charges are such that when you combine the figures together make it better to own a property.

At least, when you own a property the maintenance cost of the property is like investing in yourself. It increases the value of your property if nothing else.

Moreover, many tenants have had nasty experiences with some landlords or fellow tenants, which owning a property frees them from.

These stories go round; no wonder why most tenants prefer not to rent buildings also occupied by their landlords or landlady’s.

The psychological feeling of ownership and control is also a wonderful experience.

A property owner is the Chief Executive Officer of his or her property and can make the rules for the occupiers or can decide how he wants to utilise his property.

Owning a property is also a form of investment and the owner enjoys capital/value appreciation as time goes by.

If he or she has tenants occupying all or part of the property then he can enjoy cash flow or treat the additional income as a passive income stream. Expenses incurred in beautifying or enhancing the property will also increase its value and enable it to command higher premium in rent or sales price.

Some have also argued for owning your own house on the basis of convenience and tradition.

This is especially true of most individuals who build mega country homes which are only used for ceremonial and traditional functions a few times in the year. For most of the year, the property is ill maintained.

The only reason why some people keep such buildings is simply to have a footprint in the community.

Most of these properties end up dilapidated as there are hardly individuals available to rent them wholly or partly in most local communities.

Also, the value appreciation is hardly worth the amount of money some individuals spend on such projects. However, since the symbolic or psychological value cannot be measured, it is worth the investment if that is all you care about.

However, there is a case for renting a property rather than owning one in certain instances. Our analysis is not to encourage permanent tenants but to enable you to understand the logic behind renting a property in certain situations.

Affordability is certainly a primary consideration and there is no gainsaying about it that the reason why most people are tenants today is because they cannot afford to own or the cost of owning a property is too great for them or they simply do not know how to go about achieving this goal.

In real estate analysis, some practitioners are of the opinion that when the local real estate market is such that you can lease a property long-term for less than four to six per cent of the real value of the property then it makes economic sense to rent such a property rather than owning it. For instance, if a property is valued at N80m and rent is N1.2m per annum it is more economical to rent than to own. If you decide to pay N4.8m as rent advance for four years, you are better off than the owner who purchased the property on mortgage and whose carrying cost will be far in excess of the annual rental income.

Experienced real estate investors have specific technical considerations for buying a property.

If the price is too high or the real estate market is unreasonably high it may be a signal to move into renting or just holding on to your money rather than buying.

If you are considering investment properties, for instance, and the rental income calculated over a ten year period does not significantly give you a return on your capital or the cost of funds needed to acquire the property is too high, it makes more sense to rent.

It is important to own properties that could offset part of your cost of acquiring them.

Another important consideration is your length of stay in a particular neighbourhood. If you plan on spending the rest of your life in a particular community, by all legitimate means, do own property in such area. But if you are in transit, so to speak, and you do not intend to stay long in that area or your connection with the neighbourhood is temporary then, even if renting is expensive, it may be better. Your age and preferences also come to play in making this important decision.

Thus, a young and upwardly mobile young man, whose career changes are constant or the nature of job makes his future location uncertain, should carefully consider different factors before deciding to own a property in certain locations.

On the other hand, a person about to retire may make a more deliberate choice and should be able to state categorically where he or she desires to spend the rest of his or her life. The important thing is to weigh all the factors and options compared to your aim and status in life.