Choosing to rent or buy your home is a major decision that affects your lifestyle and financial health. Ownership is touted as an investment that is likely to build equity and a source of tax deductions. Renting also has its advantages, including little to no responsibility and flexibility. However, people often believe that buying a home, rather than renting, is a more financially sound decision.
In Nigeria, many people lean toward ownership. This is partly because we’ve been bombarded with the message that being a homeowner is the key to happiness and part of the Nigerian dream. Real estate is also big business for everyone, from landlords to real estate agents to developers.
It is a part of our cultural mindset and economy. However, it’s important to remember that owning a home isn’t always better than renting, and renting is not always as simple as it seems. Consider the pros and cons of each to figure out whether renting or owning is best for you.
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Renting means you can move without penalty each time your lease or rent ends. However, it also means you could have to move suddenly if your landlord decides to sell the property or turn your 3-bedroom flat into single-room units. Oftentimes, they could just bump up the rent to more than you can afford and you will have no choice but to move away.
The biggest myth about renting is that you’re “throwing away money” every month. This is not true. You need a place to live, and that always costs money in one way or another. While it’s true that you aren’t building equity with yearly/monthly rent payments, not all of the costs of homeownership will go towards building equity.
When you rent, you know exactly how much you’re going to spend on housing each year or month. When you own, you might pay nothing more than your installment payment, land use charge, and regular bills.
Then, the next year you might need to spend any additional money on a new roof or windows (which your homeowners’ insurance might not cover). While you might be temporarily inconvenienced by a leaking roof as a renter, it’s unlikely you’ll ever have to pay to replace your roof when you rent. Your monthly, home-related expenses, tend to be more predictable and significantly cheaper.
As a renter, you face unpredictable rent increases each time your lease is up for renewal. If you live in a desirable part of town (like on the Island), rent increases can be steep. In contrast, if you get a fixed-rate mortgage or installment plans, your monthly house payments will never increase (though property taxes and insurance premiums probably will).
While homeownership is often touted as a way to build wealth, your home can lose value. The acceptable neighborhood you moved in could decline. A major employer can leave the area, causing a significant population decline and a surplus of housing. Alternatively, there could be a residential construction boom, which could also keep prices down. You might buy a house for ₦10,000,000 tomorrow and in 30 years find that it’s still worth ₦10,000,000, meaning you’ve lost money after inflation.
Do you like having your evenings and weekends to use as you please? Do you work long hours or travel frequently? If so, then the time commitment that comes with homeownership might be more than you want to take on. There are always projects around a house that you will need or want to take care of, from finding a plumber to fix your leaking sink, replacing the doors to repainting the premises.
If you rent, your landlord will take care of all the repairs and maintenance, though of course they may not be done as quickly or as well as you would like.
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Homeownership brings intangible benefits, such as a sense of stability, belonging to a community, and pride of ownership. However, it is not good for restless or nomadic types (people who move around a lot).
Real estate is the original illiquid asset. You might not be able to sell when you want if the housing market is down. Even if it’s up, there are significant transaction costs when you sell. Changing your mind about where you want to live is far more expensive when you own.
The overall cost of homeownership tends to be higher than the overall cost of renting. That is true even if the monthly mortgage payment or installment payment is similar to (or lower than) the monthly rent.
Here are some expenses you’ll be spending money on as a homeowner that you don’t have to pay as a renter:
- Property taxes
- Trash pickup
- Water and sewer service
- Repairs and maintenance
Even renovation projects don’t often increase your home’s value by more than what you spend on them. On average, you’ll get back 66 cents for every dollar you shell out on a home improvement project, according to Remodeling magazine.
The projects that recoup the most are not glamorous things you’ll be excited about doing. The best return (and the only one on Remodeling’s list that comes close to recouping its entire cost) comes from replacing a garage door.
Once you add up all these costs, you might find that you’re better off financially by renting and investing the money you would have put into a home into a retirement account.
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Which option is best for you isn’t just about money. It is also about comfort and your vision for your life. Ignore people who tell you that owning always makes more sense in the long run or that renting is throwing away money. Also, disregard those who say that it makes more sense to buy if your monthly mortgage payment or installment payment would be the same or less than your monthly rent payment. Housing markets and life circumstances are too varied to make blanket statements like these.
More importantly, you should always ignore anyone who discourages you from buying a home because of race, religion, or marital status. Unfortunately, people were often prevented from owning land-based on race or their beliefs in the past. Illegal practices like redlining still deter members of minority groups from seeking to own a home.
Many people are also under the false impression that they should be married before buying a home. The truth is that your ability to make payments is the only factor that your landlord should consider.
All prospective homeowners also need to weigh the risks involved. Getting a mortgage or subscribing to an installment payment plan often requires using a large amount of financial leverage
Still, despite the risk, added expense, and extra chores associated with owning a home, many people choose it over renting. It provides a more permanent place to raise children. It is also frequently the only way to have or create the residence people want. Ultimately, the decision to rent or to own is not just financial. It is also emotional.
See also: Real Estate appreciation
Do you want to buy or rent a home?
One place to find up-to-the-minute advice on homeownership and renting is Zylus Homes and Properties
Whatever decision you make, we at Zylus Homes and Property through our team of sales experts will be happy to help you make the right decision for your future.
We have the right home for you! Whether to live or to own, you will find a package that suits your lifestyle and budget.