The housing debate of "should I buy or rent?" is a common one.
However, there is rarely any clear consensus as to which is better, and many people are still left with questions.
When asked whether buying or renting is better, the answer is "it depends on the individual's situation," so it is very difficult to say definitively which is better.
So, in this article, I will introduce some points to consider when deciding whether to buy or rent, based on my experience and knowledge working in the real estate industry.
We hope this article will help you find the answer that suits your situation.
What is a condominium? What is the difference between a condominium and a rental property?
Before we get into the discussion of whether to buy or rent, here is an explanation of some basic terminology.
The term "subdivision sale" in relation to housing is an abbreviation for "divided transfer." For example, selling each room in an apartment building to separate people is called a subdivision sale.
A condominium is a property that is put up for sale by the owner with the intention that the buyer will live in it.
In other words, the difference between condominiums and rentals is whether you "buy and live in" or "rent and live in."
What is condominium rental?
You may have heard the term "condominium rental."
This is a rare category, but it refers to a condominium that is rented out when the owner can no longer live in it for some reason.
In other words, although it is called a condominium, it is actually the same as renting.
Characteristics of condominiums and rental properties
As mentioned above, the difference between condominiums and rentals is whether you are buying or renting. We will introduce the characteristics of both that come from this difference.
First, we have compared the features of condominiums and rental properties. Please see the table below.
| Purchase of condominium | Rental | |
|---|---|---|
| assets | Become your own asset | Not an asset |
| Possibility of renovation | Renovation possible | Renovation is difficult |
| Facilities | Fulfilling | Relatively simple |
| cost | A large amount of funds is needed | Relatively cheap |
| Ease of relocation | Difficult to relocate | Easy to relocate |
| Maintenance costs | Regular maintenance costs required | Low self-inflict burden |
Here we take a closer look at the advantages and disadvantages of both selling and renting.
Benefits of Condominiums
The benefits of subdivision are as follows:
- The apartment becomes your asset.
- You can renovate freely
- Home loan deductions available for a certain period of time
The apartment becomes your asset.
The condominium you purchase becomes your property.
Therefore, you can sell it, and if land prices rise, you can sell it for a higher price than you bought it for.
It can be profitable as a rental property or inherited as an asset.
You can renovate freely
Condominiums allow you to renovate the interior relatively freely, allowing you to change the layout and incorporate your preferred spatial design.
It is difficult to freely renovate the interior of a rental property, so if you are particular about your living space, we recommend purchasing a condominium.
Home loan deductions available for a certain period of time
The housing loan deduction is a system that reduces the amount of income tax and local tax paid based on the remaining balance of your housing loan at the end of the year.
If the floor area of your home is 40 square meters or more and more than half of the floor area is used for residential purposes, you are eligible for a housing loan deduction for a certain period of time.
This is one of the biggest benefits when buying a home.
Disadvantages of Condominiums
The disadvantages of subdivision are as follows:
- You need a large amount of money as a down payment
- Regular maintenance costs
- Not easily relocated
You need a large amount of money as a down payment
When purchasing a condominium, you will need a large sum of several million yen as a down payment.
In addition, you will have to continue paying the mortgage for the next several decades, so you will be in trouble if you suddenly find yourself unable to repay it.
However, if you find it difficult to make repayments, you can discuss with your financial institution changing the repayment terms.
Regular maintenance costs are incurred
If you purchase a condominium, you will have to pay management fees and repair reserve funds every month in addition to your mortgage repayments.
You will also be subject to fixed asset tax and city planning tax, and maintenance costs and tax payments will continue even after your mortgage is paid off.
Therefore, if you are considering purchasing a condominium, you will need to understand the maintenance fees and taxes involved and make a financial plan.
Not easily relocated
If you buy a condominium, it will be difficult to move.
Of course, you can also sell the property, rent it out, or leave it vacant.
However, there are still mortgage payments and taxes to pay, so the hurdles to moving are higher than if you were renting.
Benefits of renting
The advantages of renting are:
- Easy to relocate
- Low costs at the time of and after moving in
Easy to relocate
When renting, you can generally move out at any time as long as you give notice one month before you move out.
You can change your residence to suit your life stage, such as when you are transferred, change jobs, or get married.
If you move on a short-term basis, you may be charged a penalty, but this is a big advantage as it makes it easier to move if you are dissatisfied with your room.
Low costs at the time of and after moving in
Renting an apartment is relatively cheap, as the initial costs when moving in are only the equivalent of a few months' rent.
Also, if things get tough financially, you can reduce your monthly expenses by moving to a rental property with a lower rent.
Disadvantages of renting
The disadvantages of renting are:
- I can't renovate to my liking
- Relatively simple facilities compared to condominiums
I can't renovate to my liking
Many rental properties prohibit interior renovations, and even if you are able to renovate, in most cases you will be required to return the property to its original condition when you move out.
If you want to be particular about DIY or designing your living space, renting a property is not suitable.
Relatively simple facilities compared to condominiums
From an investment perspective, it is important for rental property owners to collect rent efficiently, so it is difficult for them to invest in capital equipment, and rental properties generally have simpler facilities and security than condominiums.
Some rental properties offer luxury and functionality like condominiums, but the rent is high.
Funds required for purchasing and renting a condominium
Next, we will introduce the costs involved in purchasing or renting a condominium.
There are some small details about costs that are often overlooked, so we will explain them in detail.
Funds required for purchasing a condominium
If you want to buy an apartment, you will need the following funds:
- down payment
- Other charges
- Loan repayments
- Management fees and repair reserve funds
- Property tax
down payment
The average down payment is said to be 10% to 20% of the apartment price. For example, if the apartment is priced at 40 million yen, the down payment would be around 4 million to 8 million yen.
For more information, please refer to the survey results published by the Japan Housing Finance Agency.
It is possible to purchase a home with no down payment, but this will increase the amount you borrow on the loan, which will increase your interest payments and monthly repayments.
Other charges
Miscellaneous expenses include real estate registration fees and real estate acquisition tax. Although they amount to a few percent of the price of the residence, they are by no means a small amount.
Loan repayments
The monthly repayment amount for a loan varies depending on the amount of the down payment and the repayment period. Furthermore, you have to pay a fixed amount every month regardless of your financial situation.
Don't take out a loan easily just because you pass the screening, but take out a loan with a clear eye to the future.
Management fees and repair reserve funds
In an apartment building, residents share the management and repair costs for the maintenance of common areas and future large-scale repairs.
This will be a monthly expense, so be sure to understand it in advance as a cost that you will have to pay every month in addition to your loan repayments.
Property tax
If you purchase an apartment (home), the asset becomes in your name and you will be required to pay property tax.
Like real estate acquisition tax, fixed asset tax is calculated by multiplying the "fixed asset tax assessment value" by a certain tax rate, so it can be predicted before purchasing.
Since it is a tax that must be paid every year, you should make sure to check the property tax before purchasing.
Funds needed for rental
If you are renting, you will need the following funds:
- Deposit/Key money
- Other charges
- Rent (rent, maintenance fee, management fee)
- Brokerage fee
- Guarantee fee
Deposit/Key money
When renting an apartment, the majority of the initial costs will be the deposit and key money.
Depending on the rental conditions, it may be 0 yen, but the going rate is one month's rent each, so together they will be about two months' rent.
The deposit is like a security deposit and will be used to cover the cost of restoring the property to its original state after you move out, and any remaining amount will be returned to you.
Key money is a token of appreciation paid to the property owner. Unlike a deposit, key money is never refunded.
Other charges
The contents vary depending on the property, but some typical examples include cleaning fees when moving in (and when moving out) and key replacement fees.
These costs are listed in the application requirements as expenses that will be incurred when you move in, but be sure to check carefully what sort of expenses will be incurred before signing the contract.
Rent (rent, maintenance fee, management fee)
Rent is the amount you pay every month. Common area fees and management fees may also be included in the rent.
Common charges and management fees may be set high, making the rent appear low, so be sure to understand the total amount.
Brokerage fee
This is a fee paid to the real estate company that showed you the property and handled the contract procedures.
The law sets a maximum limit of "0.5 months' rent," and some places even offer no agency fees.
Guarantee fee
This is money paid when using a rent guarantee company, and just like the key money, it is not refundable.
If a tenant is unable to pay rent for any reason, the rent guarantee company will pay the rent to the owner on their behalf.
Recently, there has been an increase in properties that require the inclusion of a rent guarantee company as a condition for occupancy, so be sure to check the conditions before signing a contract.
Decision points for choosing between condominium and rental
I hope that by reading this far, you now have a rough understanding of the differences between buying and renting, including their respective characteristics and the funds required.
However, in the end, I think many people find it difficult to decide whether buying a condominium or renting is better for them.
In conclusion, I think it all comes down to how you evaluate the following three points:
- Family structure and prediction of future family structure
- Conditions of the property you are considering
- What you can't compromise on
Family structure and prediction of future family structure
If you are planning to get married in the future or have new family members (children, parents, etc.), renting may be a better option so that you can easily move out later.
If you are married or can purchase a property large enough that you can accommodate a growing family, I think it is a good idea to purchase a property.
I think it will be easier to make a decision if you realistically predict what your future family structure will be.
Conditions of the property you are considering
You should comprehensively evaluate the total initial costs at the time of purchase, the monthly payments, your (your family's) income, and your savings, and if you are able to afford it and are satisfied with the property, then you should go ahead and purchase it.
However, just because you can purchase a home, we do not recommend using all of your savings on the initial costs.
If you fall behind on your loan payments, the condo you have worked so hard to purchase may be seized by the financial institution.
This is called a living security fund, but you should have enough savings on hand to cover the cost of living if you become unable to work due to illness or other reasons and lose your income temporarily. (The standard living security fund is said to be about one year's worth of living expenses.)
What you can't compromise on
You can also decide based on which of the advantages and disadvantages of buying and renting, as introduced in this article, you consider most important.
In particular, it's a good idea to think about what you are most unwilling to compromise on when it comes to the living environment you desire.
For example, if you plan on changing where you live on a regular basis, I wouldn't recommend buying.
On the other hand, if you dream of or have aspirations to buy your own home, and you can do so financially, then buying is recommended.
summary
This time, for those who are wondering whether to buy or rent a condominium, we have compared the two and introduced some points to consider when making a decision.
For many people, buying a home is the biggest purchase they will ever make in their life, and once you've purchased it, it's likely that you'll live in it for the rest of your life.
Please refer to the various points introduced in this article so that you can make a satisfactory choice and avoid making mistakes when choosing your living environment.
