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[Fin Talk] Owning vs Renting: Which is the Right choice?

By Arlyn Tan

Owning a home is every one’s dream because it speaks volume on a person’s achievements and wealth status. However, the circumstances per person and household differ which make renting a better option.

Here are the three financial factors when one is deciding to own or rent a house:

1. The Impact on Liquidity

Owning: Owning a home requires a huge down payment. The bigger the down payment, the better terms that you will get. Bank loans have processing fees & insurance requirements. Upon payment of the full amount, you need to pay for the lump sum fees and taxes.

On top of the down payment, the renovations require a big cash lay-out.

Renting: Landlords require security deposits and post-dated checks as a form of payment.

2. CashFlow

Owning: Your prime consideration will be to cover the mortgage and the interest expenses if the house is under a financing program. When you live in a condominium or a village, you will need to factor in the homeowner’s dues. Have an emergency fund for unexpected maintenance which may arise at any point in time.

Renting: Your energy will focus on monthly rental fees, association dues and utilities. There is a possibility though that your rent may increase over time.

2. Valuation

Owning: The market value of properties generally increases over time, which can contribute to your wealth and personal net worth.

Renting: There will be no impact in terms of property valuation to the lessor whether the property depreciates or appreciates over time.

Here are the three questions that will help you make the final decision:

1. What are your goals in life in the areas of career and personal finance? It will be a wise move to see the big picture before you make a final decision. The preference to migrate to another place for career or business growth will make you feel comfortable to consider renting after you got one primary home.

When a person prioritizes the business , renting can be a better alternative so that the cash can be used as a capital. When the business stabilizes and becomes profitable, he can have the liquidity to purchase a home.

Once you know your goals, then you would know easily whether to rent or own.

2. Do you have multiple sources of income to address the requirements of owning a home?

One will need to sit down and check the income streams and total expenses of the household. However, if the income streams allow the payment of mortgage together with other obligations, then this is a good sign to proceed in owning a home. There are other financial commitments that one has to address: the expected and unexpected circumstances in life. The income stream ought to be more than enough to cover all the expenses , investments, and home budget.

3. How do you cope with changes? There are also financial costs that come with life changes i.e. new family members, medical conditions, marriage of children, and retirement. The transitions cause one to evaluate the budget that will be allocated to properties. Having Plan Bs in place and also allocating correctly allows you to have peace of mind as days and years go by. If the financial plan is not disrupted by renting a place, then that can be a better choice.

Owning or renting a home requires a commitment because it comes with responsibilities. Your decision to rent or own affects your disposable income, investible funds, and lifestyle. Apart from the financial aspects, the emotional side will have a weight on your final decision. It is advisable to consider everything in your financial plan, because whatever decision you make now will greatly affect your future.

Arlyn Tan is a Strategic Wealth Consultant. She helps individuals and organizations on how to maximize the value of their money through risk, health & wealth management. Her mission lies in making sure that clients achieve 3 things. First, they reach their milestones on time with sufficient resources. Second, they protect them from the impact of economic losses secondary to unexpected events. The third and most important is that they enjoy meaningful and balanced lives.

LinkedIn/Twitter: Arlyn Tan

FB/IG: @pinnaclefinlitcoachph

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