Should you continue to rent or invest in a property?

Should you continue to rent or invest in a property?

A question which often arises is ‘should I rent or should I buy?’ This is obviously a very broad and potentially multifaceted question, but factors that influence this decision can often include the individual’s personal financial circumstances - in other words, individuals decide to rent because they cannot afford to buy.

In addition, there may be other personal influencers such as employment status and prospects, family composition, lifestyle preferences, hobbies and activities that play a role.

 Within South Africa, there is a strong culture of owning and the desire to own one’s own home both from an investment as well as a lifestyle perspective, and so this continues to be the dominant trend. However, in recent years the rental market has benefitted from the ever increasing number of people who are unable to buy homes for whatever reason, and this market remains very active, further fuelled by a younger generation of singles, couples and families who are financially not yet able to position or raise sufficient finance - to purchase their first home.

A favorable perception of renting include the flexibility and easier mobility that renting offers, in being 'locked into' a property for a relatively short period of time. It is easier to extricate oneself from a lease and relocate than having to sell before being able to move. This makes the rental option ideal for contract workers relocating nationally or internationally.

Added to this you would immediately be able to start enjoying all the lifestyle and pleasures of owning your own home, even if it really only starts to appreciate in value in six months to a year or more from an investment perspective.

Advantages of renting

From a tenant's perspective there are various reasons why one may choose to rent as opposed to buy, and not related only to affordability.

Many want the flexibility that renting offers - a good example being expatriates who have been out of the country for an extended period during which their specific needs may have changed considerably, for example financial status, marital status or place of employment.

Renting is also a good longer-term option for those who may be returning to the country, but are undecided regarding what they are going to do or where they are going to work. For instance, if there is a possibility that your career path may take you to another city, then it makes sense to first rent until you have a clearer idea of where you are going to settle. This also applies to those relocating to different cities within South Africa’s borders.

Buying a property is a major, high ended and long-term exercise with many factors affecting the type of property one buys and its location. If you get a key element such as location wrong, it can be a difficult, expensive and time-consuming mistake to remedy - which is not the case with a rental property. When you consider it, renting a home is cheaper than buying as you don't have to tie up your capital in deposits, costs, transfer duties and bond repayments.

In the current market

 It is very important to make sure that you do proper research on an area before committing to renting or buying. Things to consider include accessibility to amenities and your place of work, feeding areas for schools, security in the area, the potential growth opportunity of the property, in other words, will the property’s value increase year-on-year? The old saying that it is better to buy the cheapest house in an expensive suburb than the most expensive property in a lesser area remains true.

Finally

Make sure that you do not overextend yourself when making a property decision. The rental on a property will increase annually, and if you need to rent for an extended period, it may mean that you will have to move every year. In the instance of a bond, the interest rate may increase, or the rates and taxes, insurances and other associated costs with owning a home.