SHOULD YOU RENT OR BUY?
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, the answer to whether you should rent or buy a home depends entirely upon your unique situation.
There are advantages and disadvantages to both options. To help you decide what’s best for you, we’ve outlined some considerations to tell if you should continue to rent or buy…
Rent until you have a plan, then buy.
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, you run the risk of breaking even or selling at a loss. This means that if 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, then it is better that you continue to rent for the time being.
Affordability of renting vs buying.
In some circumstances, it is possible that you cannot afford to purchase a property that offers the same features as your rental property. Beyond this, if you have racked up large amounts of personal debt, you might struggle to qualify for a home loan. And, if you do qualify, you are likely to be charged a higher interest rate. If you find yourself in this position, you might benefit from staying in the rental market a little longer while you try and reduce your debt-to-income ratio.
Buy as a means of saving for a rainy day.
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. Selling the property once it has been paid off and downscaling will no doubt offer welcomed financial relief when it is needed most. If you have rented for your entire life, you will have no asset to sell. The sooner you can enter the property market, the sooner you will have a paid-off asset that you can sell if times get tough.
House price appreciation or 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.
Need help making this decision?
Deciding what is the best option for you is not always easy. If you’re grappling with this decision, get in touch with a trusted real estate advisor to explore what you can afford.