The decision to buy or rent your home can generally be divided into two topics, financial and emotional. Each will influence the other in some way and it will be a different factor of influence for each and every property and owner. No solution or recommendation will ever be the same, as every property and every owner is unique.
With this in mind, a real-life example is worth examining in some detail in order to underline the financial advantages of buying versus renting a home.
If you bought a three-bedroom 80 square metre house in Bardale Village in 2007, you would have paid R399 900 for it. That same property is now worth R514 990 – a capital growth of 29 percent over the five years.
If you financed this purchase with a 100 percent bond, you would have paid around R236 811 in interest, considering that the prime interest rate has gone from 12.5 to nine percent during the period. Remember that you would also have paid off some of the capital amount and for council services through your rates and taxes bills.
If you rented this property, your monthly cost in 2007 would have been about R3 100. This would have escalated to around R4 300 per month in 2012 – a growth of 39 percent over five years. Your total rent over the five years would have come to in the region of R212 651. You would also have been responsible for council services, but not rates and taxes.
Although the initial cost of rental will generally be less than the cost of servicing your bond, the cost of rental outpaces the cost of interest fairly quickly in the life of the property. One must also remember that if the property is sold for a capital gain, it will offset the interest cost to some extent, in this case by almost 50 percent. If you have been a tenant, the cost of renting is a permanent cost and cannot be recovered.
Where you choose to live has a direct influence on your state of mind, health and contentment in life. While many people are happy with a nomadic existence, by far the majority prefer a more permanent home that they can call their own. Buying your own home allows you and your family to settle into a community and to become part of the economic and social fabric of that community. This does mean some short term financial struggle but, as shown above, the cost of living in your own home will eventually be far less than renting that same house.
Property ownership directly influences one’s pride of place in a community. It encourages you add value and make your voice heard in your community, precisely because the community infrastructure and amenities will have a direct bearing on your lifestyle and property values. The more sought-after the area becomes, the higher the property values and rentals will become. How often have you heard established home owners say that they would not be able to afford their own homes if they had to rent them? This is because their monthly cost of buying their home has decreased over the years while their salaries have increased. Rentals increase with property values and inflation.
Renting has some short-term financial and flexibility advantages but, in the medium- to long-term, renting is a sunk-and-lost cost that cannot be recovered in any way. Owning your own home is an investment that will allow you or your family to benefit financially and emotionally for years to come.
This is why property ownership is such a fundamental key to your happiness. Get away from embittering your life with complaints about increasing rentals and indifferent landlords; buy your own house now!
