A VEX­ING QUES­TION: TO RENT OR BUY?

CityPress - - Careers - Fi­nances when buy­ing Fi­nances when rent­ing As­sess­ing whether rent­ing or buy­ing is the best de­ci­sion for you

Buy­ing a home for the first time is a big de­ci­sion and all as­pects of this fi­nan­cial and long-term com­mit­ment should be weighed up care­fully.

Here are a few guide­lines that out­line the fun­da­men­tal dif­fer­ences be­tween rent­ing and buy­ing:

How you are far­ing fi­nan­cially is pos­si­bly the most im­por­tant fac­tor when de­cid­ing to buy a home.

Buy­ing a home at­tracts up­front costs that need to be bud­geted for. For ex­am­ple, a R500 000 home will at­tract R10 000 in bond costs, which is the amount needed to register the bond with the deeds of­fice.

While there is no trans­fer duty on this amount, which is the tax owed to the SA Rev­enue Ser­vice, there are still trans­fer costs of R12 100, which are the fees paid to the con­veyanc­ing agency for its ser­vices.

If you se­cure an in­ter­est rate of prime plus one (10.5%), your monthly re­pay­ments on a R500 000 bond will be R4 992.

These are not your only monthly costs. As a home­owner, you are also re­spon­si­ble for rates and taxes, levies (if you live in a com­plex), wa­ter, and elec­tric­ity and house­hold in­sur­ance for the goods and the struc­ture.

You should also bud­get a lit­tle ex­tra to be safe. Main­te­nance of the prop­erty is up to the home­owner. If you are buy­ing, en­sure you bud­get for on­go­ing main­te­nance. Set aside money

ev­ery month for an un­fore­seen prob­lem, so that you don’t land up in debt to keep your house in good or­der.

You will need to pro­vide a de­posit, which is nor­mally a month’s rent, in ad­di­tion to the rent for your first month. The de­posit is used to cover any dam­age when you leave the unit or house.

Once the de­posit is paid, you will only be re­spon­si­ble for pay­ing for the rent, elec­tric­ity and wa­ter monthly, or as set out in your lease agree­ment.

In most cases, you will be ex­pected to have your own house­hold in­sur­ance. This is to cover your per­sonal goods that are in the rented house in case of a bur­glary or a fire. It is the home­owner’s re­spon­si­bil­ity to have build­ing in­sur­ance, which cov­ers the ac­tual struc­ture of the rental.

If you can af­ford the bond, the ad­di­tional monthly pay­ments and the money for added costs, then you are prob­a­bly in a good po­si­tion to buy.

The bond re­pay­ments may seem steep in the be­gin­ning, but af­ter a few years your in­come po­si­tion will be stronger and to­wards the end of the 20-year pe­riod, the bond will not have in­creased with in­fla­tion. You should be able to af­ford the re­pay­ments and there will be an in­crease in the cap­i­tal value of the home.

When will rent­ing put you in a bet­ter fi­nan­cial po­si­tion?

There are a few fac­tors to con­sider when rent­ing. One is your long-term po­si­tion. Do you move around a lot, are you plan­ning to travel or take a break from your em­ploy­ment at any stage?

Buy­ing is a long-term com­mit­ment. It isn’t an easy process to sell a house, which may set you back fi­nan­cially if you have to sell in a rel­a­tively short time.

If you are rent­ing, you can build up your fi­nan­cial po­si­tion so that you can be a home­owner one day.

There are ad­van­tages to rent­ing and own­ing your own home. Make sure you con­sider all the dif­fer­ent as­pects when do­ing your sums and where you are in your life at the mo­ment to make that de­ci­sion.

Simphiwe Madik­izela is head of projects at FNB Hous­ing Fi­nance

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