Both renting and buying of property has their own advantages and disadvantages. Renting is great for short term and flexibility, while buying has the benefit of a long term investment. The question to ask is when should I buy or rent?
Lets have a look by considering the pros and cons of both aspects, renting VS buying a home.
Home Owners
Advantages of buying a home:
1. Buying a home offers long term security.
2. It offers a safe “space” for your equity and potential investment growth when selling.
3. Buying offers greater freedoms.
Aspects such as renovations or simply painting your walls becomes your choice, not your landlord’s.
4. Financial Independance
Buying a home, puts you on the legal path of becoming financially independent.
5. Additional Income.
Buying a space with a granny flat allows you to make extra rent income, in so doing being able to pay off your bond faster.
6. Increase your Credit Rating.
On time payments of your bond will proof your financial statues and thus improve your credit rating.
7. Refinance your Bond.
This is a quick method for making large amount of payments, however it should NEVER be done lightly. It’s not uncommon to sell your house after 20 years only to realise that you will get none of the selling profits, and that the bank actually owned your house through out all your monthly payments. Rebonding any property is extremely risky and ill advised, if this is something that you will be doing regularly then you should rather rent.
8. Tax Benefits.
The possible tax deductions are something to consider when buying a property for investment purposes. You should also consider the area and that area’s monthly income. Some areas have better renting rates than others.
Disadvantages of home buying:
1. Financial Responsibility
Buying a home comes with greater financial responsibility.
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On time payments of the bond
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Regular maintenance cost
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Rates and Taxes
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Insurance
2. Reselling of your property
Reselling of the property may bear no fruit. In difficult economic periods it’s not uncommon not to make any profit on your initial purchase. This indirectly means that you can actually stand a chance of losing money, that is if your property didn’t keep up with inflation at least.
The causes of this could be that of:
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A recession
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High interest rates
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An area becoming undesirable
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Rebonding your property
In order to know if your property is breaking even to what you would have gotten in the bank, you should be able to double your house price every ten years. If your property isn’t double it’s worth in 10 years then your money would have been better off in the bank or stocks.
3. You are less flexible
Owning a home in a particular area ties you to that area. Tenants have the advantage of being able to move from one place to the next with little effort. Once a home is bought the owner will have to sell it before being able to buy another, depending of course on your financial situation.
Renting
Advantages of renting a home:
1. More Flexibility
Renting is ideal for those that might have sudden changes, such as job relocation. Renting usually have no long term commitments other than your initial time period on your lease agreement.
2. Living beyond your means
Renting often allows you to live in an area where you wouldn’t be able to afford purchasing. This is a great benefit for short term, however if your rent becomes so much that you can start paying back a mortgage and the extra cost of purchasing you should rather consider biting the bullet and purchasing a property in a less desirable area.
3. Less Stress
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As a renter you don’t have to worry about finding new renters or purchasers for your property.
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Renters don’t have to worry about maintenance, insurance or rates and taxes.
4. More Financial freedoms
Renters can invest the remaining of their salary into other investment options, such as stock, pension funds or general savings. Homeowners will and should feel the need to put all their funds towards paying the bond faster. This is especially true in countries like South Africa with high interest rates.
Disadvantages of renting a home
1. Less Renovation Freedoms
Renters will always be bound by their lease agreement. Any renovations will come out of the renters pockets without the benefit of the property value increase, not to mention that permission will have to be asked from the landlord.
2. Third party handling
Renting Agents are often used as a proxy between the renter and the landlord, meaning that any complaints or communication may take longer to be resolved due to the third party agent.
3. Financial Loss
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Monthly rent is a pure expense, as a renter you will never legally own the property. Thus your rent money rather pays off the homeowner’s bond.
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As a renter you have no control over annual rent fluctuations which are directly affected by inflation.
4. Uncertainty
As a renter you are never sure when your landlord might ask you to move out. This of course can only happen after your lease agreement has expired, however after that you have no guarantees that your lease will be renewed.
Renting and buying has both their own benefits and their own limitations. Renting is great for when you’re young and moving from job to job. Renting also have the benefit to find the right area for you. Each neighbourhood has its own look and feel, something you should love when buying a property. It is however in my opinion that one should get to the point of buying a property. Simply paying of another mans’ bond over 40 years of rent is simply financially idiotic. Rather pay off your own bond than others’ and then you have the amazing financial benefits of owning your own home.
If you are however not at the stage to buy the please go check out our rental units.
