The debate about whether it is better to rent or buy has been one of great discussion. Traditionally the financial folk will say that buying is the best option for long term purposes, however the new research suggest that there might be great financial benefits to renting as oppose to buying.
Lets have a look at what this research suggests…
1. The Mortgage
If you get to the point that you can simply not afford to make the down payments of a mortgage, then you should most definitely be renting. Missing a month of mortgage here and there are going to spell disaster in the long term. It would be suggested that you need to save longer for a bigger deposit.
Also, many new homeowners buy to their absolute max, this can become a very dangerous game, seeing as a mortgage is only part of your expense portfolio of owning your home.
2. The Real Estate Market
Buying a home will be one of your largest capital investments that you will most probably make, thus you need to be sure of your purchase. If you are however unsure about the real estate market in the area that you live it would be suggested that buying in such a market can be risky.
Before buying a property you need to feel confident in the area, the neighbourhood and its’ people. Also homeowners should do their research and have a walk in the area. My husband always insists on having a walk in the neighbourhood, to feel the place out and to get to know the people. I realise this is unheard of in South Africa, but I can honestly tell you by having a walk you will clear many unanswered questions about what you are buying/renting into.
3. Financial freedom
If you are anticipating a life change, where you might need a large amount of funds, then buying is not the right time. You may feel that you will buy a property but not use all your savings. Today’s hard honest truth is that you will most probably use most of your saving (of all kinds of funds) to put down as a deposit with the difficulty of getting bond approval.
4. Physical Freedom
You should consider where you are in your life right now, will something like a job relocation be a big possibility?
Traditionally buying implies a long term investment, if you are unsure about your location or lifestyle situation some may say buying is not for now. Others will say that you can always become a landlord, however I would caution against it for that saying goes something like “ver van jou skatte na aan jou skade” (far from your treasures close to your damage).
5. External Monthly cost.
Renting might in actual fact work out cheaper when one start adding all the expenses of owning a home, such as the insurance, sewerage and refuse, mortgage and the property tax.
It is for these reasons that when you do decide to buy you don’t buy at your absolute limit, give yourself that buffer and wait a bit longer for the mansion.
6. Lower Ownership expenses.
Home owners has fixtures and garden services that need taken care off. These expenses can carry up to by quit the sum of money per year. As a renter none of these expenses will be of your concern.
What will be of your concern is to ensure that your landlord doesn’t take months to fix the leak on the toilet.
7. The Down Payment
Your Down payment (deposit) can financially be better invested. The real estate market usually grows with inflation or maybe slightly faster than inflation. However if you where to put this large sum of money (minimum of 10% of the property cost in South Africa) into a well managed stock portfolio you will have earned far more than just double your money in 10 years.
It is suggested that renting can be a lifestyle solution, however as a renter you should have the responsibility to put the extra cash away every month for savings. A property investment still grows, if you decide to be a lifetime renter you should save at least what your property would have been worth in 40 years.
8. Drive till you qualify
Drive till you qualify, this does not have to apply if you rent. Of course renting in a better neighbourhood will allow for higher rent, but in general the rent will not compare to the initial cost of buying in a more expensive neighbourhood.
I’m personally a homeowner and I believe in making that big financial commitment, but it must be said that in this particular matter I’m old school. I believe renting can be beneficial for your financial and lifestyle decisions. I believe you as a renter should have the the self control to actually still save as if you were at the very least paying back a mortgage, excluding the other monthly expenses. If you are able to save in this manner you should make far more that most make with their property investments in 10 years.
If you are looking to rent the please go check out of Renting Options