We have all experienced the following scenario. You have been renting a house or a flat for some time now and you just can’t seem to make a decision whether to continue renting or to purchase a place of your own. Please continue reading so that we can provide you with some good reasons why purchasing a home is much more beneficial than renting.
It’s a great investment
You all must have heard the saying that when you are renting, you are paying off someone else’s bond or contributing towards someone else’s wealth. Although it could be considered a cliché, it is absolutely true. Why would one continue doing this when your monthly contributions could be towards acquiring your own equity. It is common knowledge that a property increases in value as time progresses. The average property increases its original purchase price with 400% over a 20-year period. This is subject to the inflation rate and the property market situation at the time of the purchase and the sale but it is also a well-known fact that property prices in South Africa have always outperformed economic growth. This makes purchasing property an excellent investment.
Let’s consider some calculations to prove the latter. There are numerous ways to purchase a property. The most popular is providing a deposit and financing the remainder with a bond. Considering the bond option, you have two choices, a fixed interest rate which means your payment will remain constant or an interest rate which is linked to the bank repo rate that causes your payment to increase or decrease as the interest rate does. If you choose the first option you might have a higher interest rate than the current rate. Let’s consider the following example with a fixed interest rate:
If you rent a similar property you might end up paying slightly less in the beginning of the term. However, the rent amount increases each year which could cause you to end up paying more than the bond repayment if you should rent for 20 years. In the end the property owner would have paid less and acquired an appreciation in property of R3.7 mil.
If you choose the rent option, you could end up moving a lot, especially if you don’t have a long-term renting contract. You could be given notice to vacate the property should the owner wish to move into his/her own home or decides to sell the property. With the latter, the remainder of your contract will have to be honoured by the new owner but the long and short of it is that you will have to move at some stage. The inconvenience of having to move frequently might just not be worth your while.
When purchasing a property, you purchase so much more than just property, you purchase stability and peace of mind as well. This this especially important if you have a family. Research by psychologists have indicated that moving to a new home could be incredibly stressful for children especially if the have to change schools as well.
Customise your property
When you buy a property, to be occupied by yourself, chances are that you are going to make some changes to customise it to your liking. If you are a renter, you don’t have that advantage. If you do however acquire the permission from the owner to do so, you will have to incur the costs to improve someone else’s property which will be lost when you vacate.
Rental properties are usually built with the most basic and simple building materials and final additions. It is a simple concept for the landlord, spend as little as possible to maximise your return on investment. Don’t expect fancy taps, breath-taking light fittings, Italian tiles, granite kitchen tops etc. when you are a renter. If the walls are not your favourite colour and do not match your furniture, it is your tough luck.
The option of a second bond and collateral
Due to the fact that your property is considered an investment, you can utilise it to acquire a second bond. This enables you to borrow money against the equity which you’ve accumulated on your property
A second bond is a type of secondary loan added to your current bond.This can be done through a home equity loan or the extention of a normal credit facility like an overdraught facility. You can use this as a secondary financial backup for emergencies or financial crisis.
If you have been working for someone and have a dream to be self employed, there is no better way to kick-start your business with funding acquired by providing your property as collateral towards a personal loan. If you don’t have the luxury of wealthy family or friends which you can borrow from, this is the ideal option. Use your accumulated equity to build your business and pay it back once you start making a profit. You can follow the same route if you wish to purchase a second property as an investment and need some funding for the deposit. Remember, borrowing against your home loan is the cheapest form of credit at a current interest rate of 7%. Renters don’t have this option and will end up taking out an expensive personal loan and and be forced to pay much more for a similar loan.
To purchase property for the first time is one of the most important steps towards wealth creation. Homeownership brings intangible benefits, such as a sense of stability, building equity, belonging to a community, and pride of ownership. The pros of purchasing property outweighs the cons by a longshot. If you have been a long-term renter, now would be the time to spread your wings and venture into the world of wealth creation and equity building. Begin to search for a property that suits your needs and budget. Search for a place that you can call your own but most importantly a house that you can transform into a home.