So, whether the folks have kicked you out, you’re deciding to make a move, or just looking for that next step in your property portfolio, you’re going to start looking for a new place, but how exactly do you go about it, and what are the best options?
Buy or rent?
A recent online survey shows that most South Africans believe it is better to buy than rent a property. Of the people surveyed, the rent or buy debate was heavily influenced by age – those who were younger believed it was more affordable to rent, while the older age group believed that owning your own property was the responsible thing to do. There are a number of factors that need to be considered when deciding to rent or buy. Here are some of them.
When the time is right
Generally, it is cheaper to rent property in the short-term, but renting for lengthy period means paying off somebody else’s bond with nothing to show for it in the end.
In the short-term, buying property means making financial sacrifices in the short-term – the first couple of years of owning your own home mean coming up with a deposit and the costs associated with buying a new home. Unlike tenants whose rentals stay the same throughout the year, the property owner is at the mercy of fluctuating interest rates.
It is in the long-term that property owners score. There is the stability of owning your own home and not being subject to the needs of a landlord who might not renew a lease, requiring a tenant to seek out a new home at the right price and in the right location, sometimes at short notice. Homeowners also have a tangible asset which can lead, over time, to a bigger and more valuable property in a sought-after area.
Homeowners, unlike tenants, are also able to increase the value of their property asset by making home improvements over the years.
What about high property prices?
At a first look, it is cheaper to rent than buy. A property worth R800 000 could be rented for R6 000 a month, as opposed to bond repayments of around R9 000. This means that buying a property will cost you R3 000 a month more on an R800 000 property than renting.
The flipside is that rent continues to increase every year (with more rent coming out of a tenant’s pocket), while the value of a property typically increases year-on-year (putting more money into the pocket of the homeowner). This translates to an increase in capital growth for owners over time while a tenant will pay out increasing sums each year without the benefit of a capital gain.
Of course, the amount saved each month on a rental can be wisely invested but statistics show that most people use this saving to buy non-essential luxury items that they do not necessarily need. Typical spending habits demonstrate that it is better to put this saving towards owning your own home.
Reasons to buy a home
● Owning a home is still one of the best ways to grow your personal wealth and affords you the benefit of increased financial security.
● Getting a foot on the property ladder, beginning with a smaller and cheaper home, allows a homeowner to keep climbing towards the home of their dreams.
● A homeowner does not have to worry about moving home at the end of a lease. Owning your own property means greater choice of location, near work and close to schools, since generally there are far greater choice of properties for sale than those for rent.
● Your own property means you are able to make home improvements as finances allow, create a garden or enhance your security. This, in turn, increases the value of your property, allowing you to make a profit from the sale of the property down the line.
● A responsible homeowner, who makes repayments on time will enhance his/her personal credit rating. Credit ratings are accessed by both insurance companies to determine your risk profile, as well as by potential employers.
● Owning your own home affords you other financial freedoms like savings in the long-term from possible tax deductions related to income-generating properties or the refinancing of your bond if you need a larger sum to pay for major purchases. Personal loan providers like Wonga are also able to provide loans in case of emergencies and essential purchases. Click the link above to discover their facebook community.
What to think about before you buy
● Before you buy a home you will need to commit to bond repayments over many years. This requires a level of financial stability, consistency and sacrifice when necessary.
● Be aware of extra costs like rates, taxes, insurance and maintenance essential to owning your own property.
● A potential profit on the sale of your home depends on economic factors like recession, high interest rates or the degeneration of the location of your home.
If you are still undecided about whether to rent or buy, it can be useful when facing what could be a financial turning-point in your life, to consult a registered financial advisor who will be able to give you advice based on your financial reality and what will best suit your personal needs in the long-run.
SME Toolkit South Africa – renting vs buying (http://southafrica.smetoolkit.org/sa/en/content/en/54847/Renting-vs-Buying-Home)
Property advice centre (http://advice.privateproperty.co.za/?p=3391)
No agent (http://www.noagent.co.za/property-article16.php)
Business Day Live (http://www.bdlive.co.za/business/property/2014/03/16/south-africans-still-too-afraid-of-buy-to-let-as-an-investment)