How to decide whether to buy or to continue renting your home

The state of the current property market paired against the record-low interest rates make buying a home more affordable than renting these days. As appealing as it is to purchase right now, Adrian Goslett, advises tenants to make sure they are ready before jumping into the long-term financial commitment of owning a home.

“There are advantages and disadvantages to both options. Renting offers the tenant a certain amount of flexibility while buying a home can provide the owner with an asset that will earn him/her a substantial return on investment. Each individual needs to evaluate their circumstances and make the decision that meets their needs,” he advises.

If, for example, you are undecided about where you would ultimately like to live, or if you want the freedom to be able to relocate to another city at the drop of a hat, it is better that you continue to rent rather. “Because property is a long-term investment, it is better to stay in the rental market until you are settled and ready to commit to a particular home and area for the next five to ten years. If you sell before this time period, you run the risk of breaking even or selling at a loss,” he cautions.

In some circumstances, it is possible that tenants cannot afford to purchase a property that offers them the same features as their rental property. “Many are eager to buy property but cannot afford the home they want. Beyond this, those who have racked up large amounts of personal debt might struggle to qualify for a home loan. And, if they do qualify, they are likely to be charged a higher interest rate. Those who find themselves in this position might benefit from staying in the rental market a little longer while they try and reduce their debt-to-income ratio,” Goslett recommends.

On the flipside, buying a property is a kind of forced saving, in that the homeowner is placing money into an asset they can sell at a later stage. South Africa has one of the lowest savings rates in the world and it is getting worse. “Purchasing a home is a way for consumers to put money aside for the golden years. Selling the property once it has been paid off and downscaling will no doubt offer welcomed financial relief when it is needed most. South Africans that have rented for their entire lives will have no asset to sell. The sooner buyers enter the property market, the sooner they will have a paid-off asset that they can sell if times get tough,” Goslett suggests.

As a final consideration, Goslett compares house price appreciation against annual rental escalations. “While you could be paying R8,000 for a home in year one, you could end up paying as much as R17,000 on the same home in ten years’ time if we assume a 9% annual increase. This becomes difficult when you reach retirement and have to live off a fixed income every month. If you have paid off your home loan by the time you retire, you have the security of knowing that you can afford to continue living in your property on your fixed retirement income. If times get tough, you can also sell the property for much more than you originally bought it for,” he concludes.

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