Renting a home is so commonplace it’s surprising how little personal finance bloggers write about it. As Frugal Husband (FH) and I contemplate buying our fourth real estate property, we feel it is high time to talk about our renting experience here in the Philippines.
Renting in Makati City
I’m no stranger to renting. At 20 years old, I started renting a condo with my roommates during my first job in Makati City. I wrote about it here. From the get-go, I learned that lessors generally require little or no background check, as long as you can afford to pay upfront the usual one month advance rent, two months deposit.
If you have never rented before, this means that you simply pay a total of three months worth of rent upfront. The deposit payment will be retained by the lessor to cover any damage caused to his/her unit and will eventually be returned to you at the end of the lease term, less any costs due the lessor. So you better take care of your rented unit.
As a recent graduate with my money then tied in mutual funds, I certainly could not afford the upfront payment. Fortunately my parents stepped in to help with it! As I had roommates, rent was affordable at less than 25% of my monthly salary.
Renting my room in my parents’ home
Fast-forward to almost a decade in Manila later– after studying law, and later working as a lawyer in Makati, I moved back to Cebu and into my parents’ house, I told my parents that I wanted to pay them rent. It was less than half what I paid in Makati, of course because, parents’ discount.
I was already working as a lawyer and I did not want to be such a free-loading kid at the ripe old age of 27. I felt that it was the same thing as in Makati, except now I enjoyed the free services of our helper, free laundry, free food, free transport, and most especially, the love and support of my parents. Why shouldn’t I give back to my hardworking parents by paying them rent which I would’ve paid had I lived in Makati anyway?
With that being said, my rent was definitely subsidized by my parents and constituted less than 25% of my paycheck. I also must recognize my privilege that parents never asked for the usual one month advance, two months deposit. The subsidized rent also allowed me to accelerate my saving rate.
Renting in Cebu City
Not too long after getting married, FH and I decided to move out of my parents’ home to strike out on our own. While we have three pieces of real estate between us, they weren’t ideal residences, as we planned for them to be rental properties generating rental income with one property being held merely for speculation.
Why didn’t we live in our properties? Two of them were located in cities outside Cebu City and involved a long commute, which we didn’t want. For the condo, while it’s located in the heart of the city, we would have forgone its larger rental income.
FH and I currently rent our home. Our home of choice is not a snazzy townhouse or detached home, but a simple apartment. Our rent is waaay less than 25% of our monthly pay, only 7% to be exact. We could have afforded to rent a bigger apartment or snazzier home, but we simply chose not to. We were planning on saving for a down-payment on a house in the city. We grew up in Cebu City and wish to continue living, working, and growing old here as well.
I think both our parents were left scratching their heads at our simple choice of abode. Even after becoming millionaires, FH and I still rent a simple apartment.
Never regretted our choice. FH and I now essentially pay nothing in rent as our properties eventually started generating rental income–enough to pay our rent and monthly utilities. This will probably be evident from my saving rate.
We enjoy the convenience of our current rental as there are staff members always on site ready to fix any booboo in our place, whether a leaky pipe, or for a bulb replacement (we have high ceilings). Parking is so convenient as we do not have to physically open the gates every time we enter or exit the parking area. We feel so secure having 24/7 security.
Lessons from renting
Whether you’re still single and in that nomad phase of your life, or newly-weds like us just starting out, I certainly recommend renting your home instead of buying it. It certainly has its perks–location usually close to work, staff on site for free repairs, security. Your only concern is just paying the rent.
Speaking of rent, try as much as you can to abide by the 25% or under rule. Live a simple life. Don’t mind the stigma usually associated with renting. And the noise of people saying, “you’re throwing away money in rent, etc.” Because there usually is. Only you know that million that’s growing inside your bank account.
If rent is expensive, as it usually is in major cities, get a roommate or try one of those capsule apartments. It won’t always be luxurious or comfortable,but you won’t be renting forever.
Rent is one of our usual monthly major costs. If it costs more than a fourth of your paycheck, there will be little left over for you to invest and save. It will take you awhile to save your money and grow your net worth.
Generally, renting makes sense if you are still unsure that you will stay in your locality for the next three to five years. If you plan on staying in the same place for five or more years, home ownership makes more sense.
On buying a house in Cebu City
On this front, FH and I are currently contemplating buying a home located within Cebu City. So far, our Cebu City property is comprised of one condo unit while our other properties are located outside of Cebu City. We plan on staying in this future home until retirement.
A clear drawback to buying this house is that it will certainly delay our FIRE date (which we don’t even have yet) as we will be taking on our very first home mortgage which usually lasts 15 to 20 years. On the plus side, such long-term mortgage terms will end while we are still in our early 50s, given our current young age. This future home will be our shelter in the city so close to work while allowing us to utilize our other properties as rental properties generating passive income.
Are you a renter? What do you feel are its pros and cons?