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Should you buy or rent a home?

Sep 01 2018 10:15

Various factors are at play when one must decide whether to buy or rent a home.

For instance, someone may decide to rent because he or she cannot afford to buy.

There may also be factors like employment and further career prospects; family composition; lifestyle preferences; hobbies and activities that play a role, according to Dr Andrew Golding, chief executive of the Pam Golding Property group (PGP).

He says in SA there is a strong culture of owning your home - both from an investment as well as a lifestyle perspective.

However, in recent years the rental market has benefited from the increasing number of people who are unable to buy homes for whatever reason. This market remains very active, further fuelled by a younger generation of singles, couples and families who are financially not yet in a position to purchase their first home.

Other perceived advantages of renting include the flexibility and easier mobility that renting offers.

"It's essentially a question of one's own financial situation and requirements rather than a case of one versus the other," says Golding.

"If you can afford it, then it is certainly preferable to purchase your own home, as this has always proven to be a sound medium to long term investment - and remains so."

This is his view, despite the fact that there may be some "valleys as well as peaks" in the capital growth of a property along the way, depending on factors such as economic trends, the desirability of the property and its location, and so on.

Investment property

Due to interest rates still currently being regarded as relatively low, the question arises whether now is the time to buy.

Carol Reynolds, PGP area manager for Durban Coastal, believes that buying is first prize and the sooner you can get into the property market the better.

One option to consider, she suggests, is to rent a home for your family to stay in, but then invest in a more affordable entry-level apartment, which you can then rent out as an investment to get your foot into the market.

In this way you will enjoy a monthly income stream, as well as capital growth on your investment over the longer term.

She says if you compare the costs of a rental property with monthly repayments on a loan, on average, rental returns are about 0.5% of the purchase price.

So, if you require a bond of greater than 50%, your bond instalments will be higher than the rent you would pay for the same property.

The ultimate reward, in her view, is that your monthly bond repayments translate into ownership of your own home, which will appreciate in value in the medium to long term.

However, you also need to take into account the upfront costs of buying a home, such as a deposit, transfer duty, legal and removal costs, as well as homeowner’s insurance, bank charges and municipal rates.

Wealth creation

Lanice Steward, head of training for PGP, says wealth is created through the purchase of property as owners can obtain a mortgage, upgrade or refurbish their properties, sell and buy a more expensive property. In doing so they will increase their personal net wealth.

Advantages of renting
 
From a tenant's perspective there are various reasons why one may choose to rent as opposed to buy, and not related only to affordability, says Dexter Leite, rental manager for PGP in the Western Cape Metro Region.

Many want the flexibility that renting offers.

Leite says renting is also a good longer-term option for those who may be returning to SA but are unsure regarding what they are going to do or where they are going to work.

Tips when renting

Leite suggests ensuring that you have a written lease in place covering the period, rental payable and all the landlord and the tenant’s responsibilities and obligations. Ensure that all material aspects are negotiated, agreed and enshrined in the lease.

Keep the property in good condition and honour all tenant obligations, including paying the rent timeously.

Retha Schutte, PGP regional executive for Pretoria, says renting gives potential buyers an opportunity to go through a proper research process on suitable areas, accessibility to schools, highways and their workplace.

It also affords the tenant an opportunity to do a comprehensive search for the suitable property at an attractive price. It must, of course also be understood that a rental contract will most probably be fixed for six months to a year and it may be an obstacle if you find the suitable property early on.

The monthly rental also may be costly, so it needs to be affordable for your budget, while another factor is that the best or most attractive homes are not always available for rent.

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