En­sure long­term fi­nan­cial sta­bil­ity by in­vest­ing in home own­er­ship

Weekend Witness - - Money -

WHILE there are sound emo­tional and eco­nomic rea­sons both for rent­ing and for buy­ing a home, in­vest­ing in home own­er­ship does rep­re­sent a long­term com­mit­ment to cre­at­ing fi­nan­cial sta­bil­ity for your­self, said Steven Barker, head of home loans at Stan­dard Bank.

“Rent­ing is a good op­tion when you want a ‘lock­up and go’ life­style, or when you’re young and haven’t quite de­cided about putting down roots or even where you want to live and how you want to do that liv­ing,” he said.

“So, the de­ci­sion to buy a home is, in ef­fect, a ques­tion of what life stage you’re in and how you’re choos­ing to ac­quire fi­nan­cial as­sets. There’s no ‘should’ or ‘must’ about it.”

Barker said one sig­nif­i­cant ad­van­tage of buy­ing a house, how­ever, is that it’s a pas­sive way of cre­at­ing eq­uity — or a fi­nan­cial stake — for your­self.

“We call it pas­sive be­cause, whether you buy or rent, you still have to spend money on a place to live. In ad­di­tion, it is money which you al­ready know you can af­ford — be­cause part of the rea­son you work is to put a roof over your head.”

By con­trast, in­vest­ing in shares uses money that is ad­di­tional to your monthly ex­penses.

“Also, when you’re pay­ing off your own home, you get the ben­e­fit of both liv­ing in and us­ing your as­set. You don’t get the same ben­e­fit from any other in­vest­ment,” he said.

Buy­ing a home is not a short­term in­vest­ment. Usu­ally, if you sell in any­thing less than seven years, the price of the prop­erty won’t have in­creased in any sig­nif­i­cant way ver­sus the monies you still owe.

Also, the le­gal costs of sell­ing and buy­ing again are likely to negate any profit you may make on the prop­erty and will im­pact on your abil­ity to af­ford your next home.

There are rare pe­ri­ods when prop­erty prices es­ca­late rapidly and you can make a big profit by sell­ing. It’s worth re­mem­ber­ing, though, that the next house you buy will also have gone up in price. It is im­por­tant to get on to the prop­erty lad­der. “Once you’re on that lad­der, buy­ing another house is eas­ier as you have the value of your pre­vi­ous house to trade with,” he said.

“Own­ing a home and pay­ing it off prop­erly gives you stand­ing in the world of fi­nance. Banks are more will­ing to grant you loans for other pur­poses if you can of­fer the se­cu­rity of your prop­erty.”

Hold­ing on to your house for 10 years or more as­sures you a sig­nif­i­cant re­turn on your orig­i­nal in­vest­ment. — Busi­ness Ed­i­tor.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.