How buying a home can increase your net worth

Mark B. Aragona for Yahoo! Southeast Asia
BDO Money Matters


According to a recent financial survey, within the next two years about 45% of Filipinos today want to own a parcel of land while another 37% want to own a house or condo unit. That tells us how much of a priority it is for us Filipinos to own property, someplace we can call home. Certainly, owning a home gives one a sense of security, pride, and identity, but they do more than that—a home also helps increase your wealth by gaining in value over the years.

Homes as investment


Other kinds of purchases—cars, gadgets, and furniture—depreciate immediately once you buy them. A brand new car can lose up to 20% of its value the moment you drive it out of the store. But a home that you own grows into a valuable asset over time, even if it’s bought through a loan. Why? Because unlike other types of investments, it grows with inflation.

Inflation is the rise of the costs of goods and services over time. When these get more expensive, homes do too. As the economy grows, it becomes more expensive to build similar properties in order to provide housing for a growing population. Even if the property market has its ups and downs, more often than not your home tends to become more valuable as the years go by.

Imagine that you made a down payment of P150,000 for a home loan to purchase a P3,000,000 home. After 5 years, your house doubles in value. That means your net worth grows by P3,000,000 for an initial P150,000.

Also read: Figuring out how much of a house or condo you can afford


Being a homeowner provides you with several options. You can rent out a room of your home for additional income, or even lease out the whole place if you have a second property. You can use the home as collateral for a much-needed loan. You can unlock some of its value by restructuring your loan and borrowing against the equity. You can sell your home and use the money to buy another, more valuable property. Finally, it’s an asset you can pass on to your heirs, providing them shelter and all of the options mentioned above.

Owning vs. renting

This is an age old question and each camp has its points. Renting makes sense if you don’t plan to stay long in one place and have to move to another province or country. You only put up a small down payment, you can stay for a year and, and then if you don’t wish to renew the lease, you move on.

However, keep in mind that no matter how much rent you pay over the years, that home can never be yours.

If you want to stay for the long term, then it makes more sense to own your own home. It means you’re free from the whim of the landlord. No more rent, no more increases, no more fear of getting evicted if the owner wants to give living space to their kids or their balikbayan relative. You get to be your own landlord.

Also read: Common home loan mistakes Pinoys make

Many people pay rent for years without realizing they could be using that money for a home. If you can pay rent, it’s possible that you can pay for a mortgage as well. Do the math by comparing your monthly rent and a mortgage payment. If the difference is small, then by making up the difference you can be a proud owner of a valuable asset.

Caveats

As with buying any asset, you still have to do your due diligence. Unless you’re moneyed to begin with, you will need a mortgage to purchase a house. That kind of financial commitment takes thorough planning and system in order to pay it all off without problems.

It’s imperative that you take time to study your options for a home loan and pick one best suited for your cashflow. Ideally, you must also have a stable means of income and not under pressure from other financial obligations. Of course, you also must make sure to choose the right location for your home. There’s nothing worse than picking a house in a flood or crime-prone area, with years to go on your mortgage and no buyers.

Also read: Steps you must take when preparing to buy a home

But once chosen carefully and properly taken cared of, homes take care of you. They’re a valuable asset that provides a hedge against inflation, and at the same time gives your family peace of mind and a place to return to at the end of the day.