Should I Rent or Buy?

A basic right that all people have is to live in a home. That means you either have to rent a property, or buy one. So just what is your best option?

Let’s take a look at the benefits of renting. Firstly, it will cost you less. You can rent a property that would sell for R 1 500 000 and cost you about R 13 000 on a bond repayment, for about R 10 000, or even less. Take into consideration that you don’t have to pay the rates and taxes, or the maintenance and upkeep of the property, and it could cost you between R4000 and R6000 less than owning the property. You have all the benefits of occupation, but without the hassle and extra cost.

But what about property ownership? Using the example above, it will cost you more to own the property than to rent it. But are there any benefits to ownership? For one, if you did own the property and you kept it for the 20 years of your bond repayment, you would then own an asset that is fully paid for. Compare that to the tenant who was paying rental. Yes, the tenant paid less, but after 20 years he has nothing to show for his rent. True, he may have saved the R 4000 to R 6000 per month. But the chances are that he didn’t invest the saving in anything. It’s a proven fact that South Africans are bad savers.

The property owner, however, is forced to save. Having a bond to repay and maintenance costs on a property leaves one with little choice but to make the monthly investment. And with every month that passes, so the debt reduces, and the equity in the asset increases.

Most homeowners will sell their property and purchase a new one before the bond has been repaid. And, unless there is a significant depreciation in property values, there is almost always equity in the property that can be used towards the next property that is purchased. This forced saving mechanism, when properly managed, results in you having all or most of your property paid for by the time you retire, and often much sooner in life. That’s a really comfortable position to be in. It allows you to sell, buy something that suits your needs, and invest the difference in another investment, property or otherwise.

Contrast that to the tenant who had lower monthly outgoings but never really invested the savings in a property. By the time he comes to retire, in most cases, he has no asset to show for all the years of paying rent. In fact, he has been paying off the bond of a wise investor who decided to purchase a property and rent it out.

But what if the market crashes? Well, markets will move in cycles. They have their ups and their downs. You only lose when you are forced to sell in a down market. If you are living in the property it doesn’t matter what the value is on paper – it only matters when you do decide to sell one day. And, barring some personal disaster, you should be able to sell when the timing is right. The key is to view property as a medium to long-term investment. Gone are the days when you could purchase a property today and sell it in 2 years for a huge profit. Slow, steady growth is much healthier.

So, if you have the means, there really is a much stronger argument to buy a property than to rent one. Aside from the forced saving, there is the added significant emotional benefit of living in a property that you actually own. It’s yours. You can change it as you wish. Paint the walls green it you feel like it. Put your own personal stamp on it – and make it the home you want for you and your family. When you rent you simply don’t have that freedom. It’s someone else’s property you are living in – and you may only enjoy it within the bounds your landlord allows.

With property prices having corrected from their over-valuation of a few years ago, now is an excellent time to buy. Interest rates at 40 year lows means you can afford to buy and service your bond. So, if you’re renting, why not start looking for a property to purchase and create long-term wealth for you and your family? It’s won’t cost you that much more than renting – and you can really make it your own! There are excellent property investment opportunities for the taking – but when the market turns again they will be hard to come by. Speak to a professional agent you trust to see what properties are on the market now that could meet your needs and fit your budget.

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