Should you buy or rent, or combine both of them

A question which often arises is: Should I rent or should I buy?

Individuals often decide to rent because they cannot afford to buy.

In addition, there may be other personal influences, such as employment status and prospects, family composition, lifestyle preferences, hobbies and activities.

Generally speaking, within South Africa, there is a strong culture of owning and the desire to own one’s own home both from an investment as well as a lifestyle perspective, and so this continues to be the dominant trend. However, in recent years the rental market has benefitted from the ever-increasing number of people who are unable to buy homes.

It’s essentially a question of one’s own financial situation and requirements rather than a case of one versus the other.

With interest rates still relatively low, is now the time to buy?

Buying is first prize and the sooner you can get into the property market the better. One option to consider is to rent your family home, but then invest in a more affordable entry level apartment which can then be rented out as an investment to get your foot into the market.

In this way, you will enjoy a monthly income stream as well as capital growth on your investment over the longer term.

If you compare the costs of a rental property with monthly repayments on a loan, on average, rental returns are about 0.5% of the purchase price. So if you require a bond of greater than 50%, your bond instalments will be higher than the rent you would pay for the same property.

The ultimate reward is that your monthly bond repayments translate into ownership of your own home, which will appreciate in value in the medium to long term.

However, you also need to take into account the upfront costs of buying a home, such as a deposit, transfer duty, legal and removal costs, as well as homeowner’s insurance, bank charges and the municipal rates as well.

In the current market, a prospective buyer may feel more inclined to rent, as it may be cheaper than the bond repayments in an area in which they want to live, or wish to live.

If the latter is the case, sound advice would be to if possible buy a property in an area you can afford, and put in a tenant who will help you pay off the bond. You can then rent in an area where you want to live.

Over a period of time, you can either sell your rental property, or be fortunate enough to afford your new property using the rent from your investment property. In this way you can build up a portfolio of properties.