Renting vs buying – which is better?
Is it better to rent or buy property in South Africa at the moment, especially given the country’s current political and economic climate? Our credit downgrade to ‘junk status’ earlier this year certainly didn’t do much for consumer confidence, so it’s not surprising if prospective homebuyers are still feeling uncertain about what to do next.
Tip #1: Stay proactive no matter what
Investing in property is a long term commitment that shouldn’t be entered into lightly. That said, you can always pursue your dreams of home ownership, regardless of what the South African economy is up to. If you’re still renting from someone else, then saving towards a deposit on a property is one proactive step to take while you wait to buy your own home.
Tip #2: Do your homework
There are definite pros and cons of renting or buying property. As a prospective property investor, you’ll want to know what these are so you can make an informed decision, so we’ve listed a few of the top considerations below.
The pros and cons of renting a property
PRO: As mentioned above, if you can find a suitable place to rent, which allows you to save towards a deposit on a future home, then renting is a great option for the interim. This means you’ll take the difference between your rent and what you would be paying off on a bond each month (if you had one) and you’d invest it or put it into a savings account to grow or earn interest.
PRO: Another positive about renting is that, as a tenant, you aren’t responsible for the upkeep of the property and any associated costs. You do need to take good care of the property and return it to the landlord in good condition, but you aren’t responsible for any big repairs.
CON: The downside here is having to wait on a landlord to sign off on maintenance and repair quotes. (S)he may not have the money (or inclination) at the time to pay for the fixes you want, when you ask for them, which isn’t ideal.
PRO: The upfront costs for renting are relatively low. Once you’ve paid over your initial deposit, you only have to worry about covering rent, rates and levies each month. Your landlord will likely increase your rent each year, but this can be budgeted for and shouldn’t come as too big a surprise.
CON: Living in a property that isn’t yours means that you could be given notice at the end of the year about the non-renewal of your fixed-term lease. You’ll hopefully have enough time to find a new place to move to, but this means putting down a new deposit, as well as all the costs involved with relocating your household. The inconvenience here could be a lack of suitable rentals in your area, which means you’ll have to move further away from everything you know – including your kids’ schools, doctors and healthcare facilities.
The pros and cons of buying property
PRO: The long-term benefits of owning your own property include being able to build up equity on your home and growing your personal wealth over time.
CON: Being a homeowner comes with financial responsibilities, such as paying off a home loan, seeing to the ongoing maintenance of your property, and paying insurance on your property. This means you’ll have to have all your financial ducks in a row before you take the plunge.
CON: A property grows in value over time, but to realise an actual profit when you sell, you’ll need to own the property for a while. Property ownership, therefore, is a long term commitment and won’t suit anyone who enjoys a larger degree of flexibility.
PRO: Your property can help you earn additional income. As a property owner, you have the option to rent your home (or a part thereof) to a tenant. Over the holidays, you can even Airbnb your property so it earns money for you while you’re away.
PRO: By the time you’re ready to buy a home, it makes sense that you’ll want to make it your own. The great thing about owning a property is you can. You don’t need to ask a landlord’s permission to paint a wall or make structural changes to the property. Your home becomes a blank canvas and you can do with it what you want.
PRO: You can use the equity on your home to apply for additional loans or lines of credit, which you wouldn’t be able to access otherwise.
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