RENT VS MORTGAGE: WHICH ONE IS BETTER?

Once upon a time, I came across two clients that were both in need of accommodation. For the sake of this story, we will call them Client A and Client B. Both clients coincidentally had been served with quit notices to vacate their then current places of residence and had only less than six months to do so.
Naturally, they both came to me for help to find appropriate homes as I am established realtor operating in Enugu. After the rigorous and time consuming process of house hunting, it boiled down to the 2 following options to consider.

OPTION A:
At the time of this exercise, as fate my have it, an estate developer of low income houses hand just completed construction of an over 150 houses and had offered the houses for sale in Enugu. These house comprised of 1bedroom, 2bedrooms and 3bedrooms detached and semi detached bungalows for sale at a selling price of N7.5m, N9m and N11m respectively.

The developer had an interesting offer that went as follows. For example;

Property For Sale in Enugu:

DESCRIPTION: 3bedroom bungalow, fully detached with all room en suit, floor tiles, security etc.

PRICE: N11m

SIZE OF LAND: 500m2

LOCATION: Premier Layout within Independence layout.

TITLE DOCUMENT OF THE LAND: C of O

PAYMENT OPTIONS:

A. Cash and Carry

B. Bank Mortgage with conditions as follows.

i) Initial deposit of 20% of the selling price which equaled N2.2m
ii) Interest rate: 6% per annum
iii) Balance to be repaid over 30yrs at N25,000.00 per month.

OPTION B:

On the other hand, we came across several other properties for rent in Enugu at the time. One of which caught our eyes because it was tastefully finished, conveniently situated and had all other desired attributes. The offer went something like this;

CHEAP HOUSE FOR RENT IN ENUGU:

DESCRIPTION: 3bedroom bungalow, tastefully finished with all rooms ensuit, a guest toilet, kitchen cabinets and wardrobes, floor tiles, dedicated pre-paid meter, provision for water, great accessibility to major roads and transport routes, fully detached and fenced with a security post etc.

RENT: N750k per year payable 2yrs rent in advance.

LOCATION: G.R.A, Enugu

AGENCY FEE: N150k(10% of rent)

LEGAL FEE: N100k

TOTAL: N1,750,000.00(one million seven hundred and fifty thousand naira)

I presented the two options to both clients. So they had a choice to make.

TO RENT OR TO BUY?

Do I pay a landlord to temporally live in a house that I don't own or do I pay the bank and permanently live in a house that I own?

They finally made their choices, Client A decided to rent while client B decided to buy.
We closed both deals and everybody went their merry way fully satisfied with the deals that they got. It was a job well done for me.

2yrs later, Client A called on me again asking me to help him find alternative accommodation. I questioned him and found out that his landlord had increased his rent from the initial N750k per annum to N850k. The landlord gave him the option to either renew his rent or pack out of his house. This left Client A desperate to find cheaper accommodation because he couldn't afford to pay the new rent. So I went to work for him.

But this also reminded me of Client B so I decided to pay him a visit to find out how he was getting along. Client B was very happy in his home. He explained to me that he was paying a comfortable monthly mortgage to the bank which got cheaper over time. He also asked for my advice too because someone had just offered him N15m to buy his house. If he decides to sell now, he would make N4m profit and still have money to buy another house or maybe even build.
I advised him to wait another year before selling because the value of real estate appreciates over time, he would most definitely get a higher price than N15m the following year.
I bid him farewell and left him to concentrate on his N4m problem.

In the long run, it turned out that Client A was most likely going to pay a higher rent every 2years to reside in a house he didn't own while Client B paid less every year to reside in a house that he owned.
Client B paid less to the bank every year due to the fact that he was paying off his debt little by little so the more frequently he paid, the less he owed over time. He also had the option of re-selling the property because he owned it out right.
His property is currently valued at N16.5m.

Who do you think is better of, Client A or Client B?

Thank you for reading. I hope you enjoyed this story.

Do have a nice day.

If you ever find yourself in need of a cheap house to rent in Enugu or a cheap property to buy in Enugu, don't hesitate to call on Fedenni Homes.

We are at your service.