Ensure longterm financial stability by investing in home ownership
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.