A Fin24 user wants to know when is the right time to buy property. He writes:
When is the right time to buy a property?
Should I rather invest in a high return investment (e g Satrix) to build up a good deposit, thus requiring a smaller loan and paying less interest?
Or should I bite the bullet, take a larger loan and start paying it off now (including a lot of interest)?
PS It will be R1 000 extra per month to buy rather than rent.
Mari van Wyk, Korbitec executive manager: customer relationships, says the debate on whether to buy or rent, and at what point one option becomes financially more beneficial, is a complicated one.
Laurie Wener, MD for Pam Golding Properties in the Western Cape, concurs, saying that only hindsight can reveal if the time was right.
It also depends on what you want the property for. Is it a long-term investment (for over six years), a short-term speculative buy or a home to live in?
For long-term investors and homes, it really does not matter as the former will inevitably grow over the term; if it is the latter and you buy when you have the need, there should also be growth over the term unless it is for a short term.
Basically the shorter the term the higher the risk, says Wener.
"One word of caution: if you sell in a bullish market, try to buy quite quickly to avoid being outpaced by the capital growth.
"Property investment is a fine way to grow wealth but there is a cost (maintenance, taxes, vacancies) and it may not be able to be liquidated quickly at any given time."
On whether to invest on a high return investment, Wener says generally the lower the borrowed funds the better, as this reduces the interest/cost and risk of increasing interest rates.
However, investors should borrow to the extent that there is tax efficiency on the rental income.
Or you can, as you state, "bite the bullet, take a larger loan and start paying it off now (including a lot of interest)", if it provides for your current need.
You can reduce the interest by increasing repayments monthly and/or repaying lump sums into your mortgage when you have the money, says Wener.
"Buying is always better than renting as you are growing your investment while living in it and can also use the profit to upgrade - but be sure you can afford your mortgage and the costs associated with ownership.
"If you need a short-term residential solution, say one to three years, it is probably safer to rent as the cost of purchasing and selling (transfer and bond costs to the purchaser and agent's commission and capial gains tax, if any) means you will have to achieve about 15% over the original purchase price to break even," says Wener.
Adds Van Wyk: "There are many benefits and drawbacks to both renting and buying property, and you can get an idea of what these are by looking at the Property24 Rent vs Buy Guide.
She says investment considerations like these are really something that should be discussed in greater detail with a financial adviser, who can give assistance based on the specific details of your situation.
But be aware of the commission earnings of advisers, adds Wener.
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