On Monday, I published an article about how Feyma had finally found a suitable house for use to rent here in Davao. Of course, we’ve been living in Davao for years, so this was not our first rental house in the City, just the latest.
Almost immediately after the article was published, a number of people questioned why I would rent instead of buying a property. Jim Cunningham put it in a non-confrontational way, simply wondering why I would choose to rent. Thomad Gil called me stupid for renting. Hmm… it’s the first time in years that I have been accused of being stupid, but if that is what Thomad thinks, well, so be it. The fact is that I have some real concrete reasons why I would prefer to rent. For others, like Jim or Thomad, if they wish to own a property, that is their decision, and I do not think that they are wrong for doing so, but the fact is that owning a house in the Philippines is not my choice, at least not at this time.
So, what would be my reasons for wanting to rent instead of owning a house?
First, timing is a key factor. Right now, my youngest child is in grade 4. He will finish High School in about 6 years from now. At the time that our youngest child finishes High School, we probably will choose to no longer live in Davao. The fact is that there are things about Davao that we are really becoming disillusioned with. The city is becoming way too crowded and congested for our taste. Traffic in Davao is a nightmare, and it seems that little or nothing is being done to alleviate the problem. So, it is unlikely that we will remain in Davao after our youngest child finishes school.
Because our current place of residence, Davao City, is a place that we have come to consider only temporary, the temptation to own a home here is simply not there. We don’t have the desire.
Jim mentioned in his comment that being economically astute dictated that you should own a house instead of renting. He mentioned something along the lines of paying rent was like throwing money away.
I am sorry, but I disagree with that. Let’s look at some numbers.
The house where I am currently living had been offered to us for sale a number of years ago. The price was P20 Million Pesos. Now, I pay rent here of almost P38,000. In US Dollars, at today’s exchange rate, the asking price for this house would be $476,000. My rent in US Dollars would be $883.
OK, so if I take $476,000 to buy a house, or to build one, it could save me from paying $883 per month. Alternatively, if I took $476,000 and invested it with an annual return of just 5%, my return would be $23,800 annually, or $1,983 per month. I could invest that money at 5% (in normal economic times that is a quite conservative return) and the interest on the money would pay my rent and also produce an extra $1,100 per month of income for me. If I buy the house, I no longer have the principal, and I save $883 per month. If I were able to get 7% interest instead of 5%, my monthly return becomes $2,776, an increase of about $800 per month!
On top of the simple interest calculation, if I own the house I am also responsible for other things. Property taxes. Repairs on the house, and such.
Frankly, given these kind of numbers, it makes no sense to buy.
In the USA, Real Estate investors generally shoot to get a minimum of 1% of the property’s value each month as rent. That makes economic sense, and makes it prudent to buy a property. I have been paying only 2/10ths of one percent of the property value for rent! That’s almost like they are giving it to me! Economically, buying property in the Philippines is a losing proposition.
Ah, I know that many are saying that if you buy a house, it will appreciate in value, so it is an investment. Fact is, that is not necessarily true. Especially if you do a large house at the top end, the odds of it appreciating in the Philippine market are small, in fact the odds are that it will remain the same, or even decrease in value.
Hard to sell
If you own a house and decide you want to move – maybe you want to go back to the US or wherever you came from, or maybe you want to go to Bohol, Cebu or some other place in the Philippines, the fact is that a higher end property, especially one built “for an expat” who has different tastes than the local market, is very hard to sell. I have seen houses that are up for sale for years here. I have also seen expats who decided to “go home” and had to sell their dream house for a fraction of what they spent to build it.
Personally, I have no plans to leave the Philippines, but you just never know. I know one thing, I have no desire to be saddled with a house that I need to sell. I’d much rather have cash.
Freedom and Flexibility
As I have told about repeatedly on this site, I have had some serious issues with my neighbors in the past year. If I owned the house, I would be stuck here and could not just move to a new neighborhood. As Dave Starr mentioned in a comment, what if I had neighbors who decided to open a metal shop, or a pig farm next door? There would be little I could do. If I am renting, I can just move somewhere else. If I owned the place, I would be stuck.
Any regular reader knows that Feyma and I own property on Samal Island. We have talked about building a house there. Because of some of the things I mentioned above about Davao, we feel that we don’t want to live in Davao in the future, and that includes Samal. Maybe we will change our minds over the years that are coming, we are not sure. But, right now, we have other options in mind. I have not mentioned here, but Feyma also owns other land in other parts of the Philippines (in Mindanao and in the Visayas), and these other places are possibilities for our longer term living. Maybe we will be in Davao, maybe not. Right now, we are leaning toward not making Davao our long term home, though. Why would I want to buy a house that could be very hard to get rid of in the long run?
The truth is, there are a lot of reasons why, at this time in my life, I feel it is better for me to rent. If others think it is unwise, I have no problem with whatever they think, but I also know what is right for me. Am I stupid for renting? I don’t think so. If some people think I am, I don’t really lose any sleep at night worrying about what they think. I also do not lose any sleep worrying about whether I should rent or own a house in the Philippines. I know what is right for me. I don’t know why others think that I should live by what is right for them.
There are reasons to own property too, I am not saying that there are not. The biggest one is simply because you want to own your house. For some, it means peace of mind to own their house. For others, like me, they get peace of mind not being tied down to a property.
We owned our house in the USA, so we are not anti-owning. I am, however, anti-owning-in-the-Philippines. At least for now, given my life situation, and my future plans.
I have no issues with those who want to own, it is their decision. I don’t understand why my wish to rent my house should be a concern for others.