Master of Money Management

Rent or Buy

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The debate about the merits and demerits of renting Vs buying a house has been going for years. Some investment experts have come to verbal blows about the subject. The decision to buy a house is a personal one but in general, at least owning the property you live in is a good idea. The merits of owning more than one property is up for debate.

The first issue to be considered when buying a home is your current life status. If you are favouring the lifestyle of a desert nomad and not putting down roots; a house with all its ties can be frustrating. Having tenant in your home while you are out of the country is a real pain to deal with, when you have to discuss light bulbs on pay as you go Euros. The other thing to consider is how long you will be living in the home and do you expect to sell it within a 5 year period. Buying a home costs more than just the asking price. It involves lawyers’ fees and registration costs, which could be as much as 10% of the value of the property. If you factor in the agent’s commission, moving costs, renovation and décor expenses, it adds up to a decent chunk of cash. So if you tend to move every three years, those costs will soon make you poor. In other words, you need to stay put for a while to financially benefit from home ownership.

Renting the property out may be an option if you have nerves of steel and the patience of a lizard waiting for a beetle on a sand dune. Tenants can be a challenge, I am not going to say much more, other than it costs about R80, 000 to get an eviction order if things turn gnarly.  You also need to factor in interest rates. Can you afford an increase in bond payments? You can only increase your tenants rent once a year, so if rates go up by one or two percent, you may be subsidising the bond.

If you intend to stay in the house for more than 5 years, then purchasing would be a better option than renting – provided that you pay off your bond in no longer than 15, preferably 10 years. Living rent free will significantly improve your bank balance.

There can be certain advantages to renting too. For example, with the recent hike in interest rates, people holding leases were probably spared increased payments. In addition, the landlord carries out all maintenance to the property, so your costs when renting are predictable. But be warned, if the landlord has a bond on the property, he or she may well pass on the increased cost to you when the lease comes up for renewal.

Looking into far away land you need to be aware of the consequences of being a serial renter. There will come a day when you won’t want to work as hard and kick back a little. This is not the time to be dealing with big increases in your rent. Those who have a rent commitment when they retire can be at risk because they have no way of forecasting what rents will be 10 or 20 years from now. Their investment income may not escalate at the same rate as rents, so they could find themselves seriously short of money down the road. The advantage of owning your home is that once it is paid off, you can live rent-free. There are costs involved in home ownership such as maintenance and rates but this will be a lot less than lining a landlords pockets.

So as you can see the main rule is, buy a house if you think you will be staying there more than 5 years. Over time, the ownership of property has been proven to be a significant force in building personal wealth. Aside from the numerous financial benefits of owning your own home one cannot discount the warm fuzzy feeling you get when you know that you can finally paint the walls with chalkboard paint and install Tivoli fountains.

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