Renting vs Buying Property: Which is Best for You?

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Why is it that people are so “obsessed” with owning their own property?

In this article we’re going to compare 2 scenarios– i..e renting vs buying property– to shed light on the subject so that you can decide which is right for you. 

Stability and Security

One reason most people dream to own their own property is to secure a home for themselves and their family.

A permanent home provides stability and unless the homeowner falls on “difficult times” he won’t be required to relocate the family, unless they actually make the decision to do so.

When renting a property, your occupation is subject to the renewal of the lease by the landlord.

You may face unnecessary expenses to relocate and even uproot your family from their current school and environment.

Forced Savings?

A second reason most of us long to own our own property appears to be a long-term forced manner of saving.

Few tenants will have the discipline and commitment to save the difference in rent and a bond repayment on a monthly basis

Although homeowners expend a lot more money per year than a tenant, the tenant will be faced with a rental increase every year.

It may take many years before the expenses of a homeowner and landlord eventually break even and during the initial few years the tenant may be better off than a homeowner.

But in the long run, a homeowner will enjoy the benefit of his forced savings. 

The reason for this is that the average South African doesn’t have a savings culture and, unless forced to contribute money into a home investment, is unlikely to have invested the difference in the rental savings and the mortgage repayment after 20 years.

Renting vs Buying

Recently John Loos, economist at FNB, was asked to provide a quick summary of the advantages of rental vs. buying.

He answered that if one compares a home loan of R1 million and the rental paid towards the same property, even if the value of the property doesn’t increase over the 20-year repayment of the home loan, after the 20-year period when the bond is repaid, the homeowner will have the benefit of an R1 million asset and the tenant will have nothing.

He said that few tenants will have the discipline and commitment to save on a monthly basis the difference in the rent paid and the aforementioned bond repayment.

Unless we have an increase in bank interest rates, your repayment to the bank may stay the same, while your rental may increase every year.

Although interest rates are currently at the lowest they’ve been in 30 years, you must prepare yourself for interest rate hikes as they are likely to happen in your tenure of homeownership.

Some years ago the interest rate rose to 23 % – compared to  the prime rate of 8.5 at the moment.

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About Author

Meyer de Waal is a practising attorney and director of Oosthuizen and Co Meyer de Waal Inc. Meyer is passionate about helping people manage their finances better and own their own homes and, as such, he started rent2buy and My Budget Fitness.

  • Justin

    This doesnt take into consideration the exoensive transfer fees as well as maintenance costs, which, together with the difference of the rental and the bond costs, can be invested in even a medium risk portfolio. After 20 years, you should come out on top if you rent, if you have the discipline.