Several factors are at play when deciding to rent or buy a condo unit. There are pros and cons to renting as there are pros and cons to buying your own unit. Speaking of which, here are some ways to find out which makes more sense financially.
1) Calculate the price-to-rent ratio
Price-to-rent ratio refers to the measure of a property’s relative affordability based on the ratio of its price to the rate of annual rental. It’s not as complex as you think it is.
In calculating the said ratio, find a condo for sale and condo for rent with the same features and unit size. You may also consider comparing the rate of a condo unit if you are going to buy or rent it.
For instance, an 18-square meter unit in Amaia Skies Avenida costs around Php1.4 million. The monthly rental rate for a unit of this size is between Php18,000 and Ph25,000. Dividing the total price by Php216,000 (Php18, 00 x 12 to get the annual rental rate), your price-to-rent ratio is 6.48.
As a rule of thumb, a rental ratio of anything higher than 20 means that the monthly costs of owning a condo unit will exceed the monthly costs of renting the same condo unit. Hence, buying a unit in Amaia Skies Avenida makes more sense based on our calculated ratio.
2) Determine the household income
Household income is one crucial aspect of deciding whether to rent or buy. You must have a good grasp of what you will be earning in the next three years.
For example, if you are currently earning Php60,000 monthly with a 10 per cent increase annually, your earnings in three year’s time will be Php2,383,200. The figure is the result of Php720,000 (Php60,000 x 12) in the 1st year + [Php720,000 + Php72,000] in the 2nd year + [Php792,000 + Php79,200) in the 3rd year.
If the purchase price of the condo unit you are eyeing exceeds what you will make in a three-year period, it means that the unit is overpriced. With this, the Avenida condo unit, which is priced at Php1.4 million, is a good buy for you if you are earning Php50,000 or higher monthly.
However, if the total price exceeds your earnings within the said period, it would be much better to rent or look for another location (probably a near-city neighborhood) if you really want to own a condo.
3) Compare the long-term costs
Condo ownership starts to pay off through building equity. However, a condo owner may only reap the reward of owning a unit after five years of ownership. This is enough time to recoup the initial investment.
If you are planning to marry and start a family in a couple of years and if your income permits, consider purchasing a unit. A condo unit is an excellent option for a small family.
If you buy a condo in Avenida, for instance, this will be your residence until the loan is paid off or until you can find a buyer to liquidate your asset.
There are instances when buying makes more sense financially compared to renting. Bottom-line, you need to consider your own circumstances especially financially before you make a life-changing decision.