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Car or flat? How to be smart about your choice

Jan 03 2016 12:48

Cape Town - Many young people starting out on their careers in 2016 will be faced with the choice of buying their first car or their first apartment.

“And the answer might not be as straightforward as you might think,”cautions Shaun Rademeyer, CEO of mortgage originator BetterLife Home Loans.

“On the one hand, a car might make it easier for you to get around and improve your job prospects; you need less cash upfront to buy a car and the shorter loan tenure makes this a less scary purchase.

“On the other hand, a car is a depreciating asset while a property, generally speaking, will continue to appreciate in value and be worth more when you sell it than when you buy it. And if you choose the right property in a location that enables you to use public transport instead of a car, you can probably pay it off a lot faster.”

However, he says, people are all different and there is clearly no one-size-fits-all answer to this question. Considering the following issues, though, will hopefully help you to find the right answer for your circumstances:

* You might want both but which do you really need more?

If you are living with family or renting cheaply with roommates but facing a long commute to work every day, you may feel that you really need the car right now.

However, you should sit down and work out whether your current rental option is really the most cost-effective solution – and whether you want to continue with it for the next few years while paying off the car.

If you did not have to pay for a car plus maintenance and insurance, for example, you might be able to live closer to work even if you did have to pay more rent. And then you might even be able to save enough to buy a car for cash – or buy your own apartment sooner than you thought.  

* What can you afford, realistically?

There is often a big difference between what we want and what we can afford. If you decide that you would rather have the apartment, for example, you will need to save enough cash for the deposit and transaction fees, and you will also need to make sure that you can comfortably afford the bond instalment, the monthly levy, the property rates and the insurance on your current earnings.

And if your finances won’t stretch to this right now, you will need to make choices that will help you to either boost your earnings or cut your living costs and start saving.     

* Consider your lifestyle.

Some people really don’t mind renting but hate travelling on public transport, for example, and would thus always choose the car ahead of the apartment. For others, having a place they can call their own and not having to worry about annual rental increases is much more important, so they will naturally do whatever they can to buy the apartment and worry about a car much later.

You need to be honest with yourself about what your personal priority is and make your choice accordingly.  

What would do? Tell us why. You could get published.

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