It’s a fait accompli that we need a roof over our heads, but what is less certain is whether we should rent or buy.
As with almost everything, it all depends on various factors. And both these options have their benefits and downsides.
Interest rates, the recurring costs of both options, your financial goals, the maintenance of your property, your life stage and the initial costs are just some of the factors that need to be considered when making this important choice. And often the advantage of the one option is a direct disadvantage of the other. You need to weigh these and make an informed decision.
Here is a concise list of the pros and cons associated with both:
Bill Rawson, founder and chairperson of the Rawson Property Group, says, “Rather than paying rent, which you will never see again, some of the money you pay towards your bond will go towards building equity in your home. There is also the option to refinance your bond should you need to withdraw a large amount of money, which is always a useful card to have in your back pocket.”
A property also appreciates in value over time and doesn’t lose value like a car. Seeff Properties CEO Samuel Seeff says you are therefore able to sell your property at a profit after a few years and use that money as a deposit for your new home.
Having paid off your home after 20-30 years the property is yours and you don’t need to fork out more mortgage money during retirement, but merely maintain it by giving it a lick of paint and sprucing up the garden.
Renting a property means the landlord remains the owner and the tenant forfeits all the rent.
- Costs and repayments
Apart from the odd interest rate hike, your bond repayments remain steady while rents increase each year. You might struggle initially to make the payments, but your income will keep rising whilst the bond repayments remain roughly the same during the repayment period. The landlord can also decide at a whim to increase the rent by a double-digit figure.
But when it comes to the initial set-up costs and maintenance and other auxiliary costs, renting beats buying by far. Tenants are not required to pay transfer duty, lawyer’s fees, levies, rates and taxes and other maintenance costs, but only to put down a deposit (this is usually equal to one month’s rent and it is wholly or partially refundable when the lease runs out). Banks often also require hefty deposits such as 10% or more of the purchase price – something which is out of reach for many.
However, Rawson says in the first few years after buying, the initial repayments only go towards interest and not settling the bond. If the owner decides to sell after only three years, it means the money paid until then is lost although the property’s value would have risen somewhat. Selling also means ceding 7.5% of the selling price to an estate agent and if the property’s price hasn’t risen enough in the intervening years between buying and selling, the seller might even suffer a loss.
He adds that you will also be able to rent a better property closer to many sought-after amenities, while you simply cannot afford to buy property in that same area.
- Customisation and mobility
Owning your property also affords you the luxury of choosing the furnishings and other features of the property. These might cost you extra, but they add a bespoke aesthetic element to your property and ultimately also add value.
When renting, the landlord might refuse your request to paint the house or specific rooms a different colour, or build that lapa you so dearly desire. And besides, you can’t take those improvements with you when you move.
According to the UK-based Money Advice Service renting means the tenant can easily move somewhere else without much hassle. Before a buyer is able to pack up and move, he first has to sell his property and that is often a lot more cumbersome and expensive than one might think.
There is no right or wrong answer here and it all depends on your needs and goals.
Rawson, B. 2015. “To rent or Buy: The Great Debate”. Rawson Property Group, http://www.rawson.co.za/advice/to-rent-or-buy-the-great-debate-id-1773.
Money Advice Service. 2015. “Rent or Buy?” https://www.moneyadviceservice.org.uk/en/articles/should-you-rent-or-buy.
Seeff, S. 2013. “The Old Rent Versus Buy Debate”. Seeff Ballito, http://www.seeffballitoproperty.co.za/news/the-old-rent-versus-buy-debate/.