When to Rent and When to Buy Property
There’s a right time for everything, and there are certain times in life when it is more beneficial to rent a home than to buy one.
Albutt says if you’re young and currently renting a home but thinking of buying, for example, there are a few things you ought to consider carefully before you go ahead and change your status from tenant to homeowner.
This is according to Wayne Albutt, the Rawson Property Group’s Western Cape Regional Sales Manager, who says if you’re young and currently renting a home but thinking of buying, for example, there are a few things you ought to consider carefully before you go ahead and change your status from tenant to homeowner.
Albutt says tenants considering becoming homeowners should consider the following:
1. Are you ready to settle down?
“The first of these is whether you think you are ready to stay put for several years, or might still want to relocate for work or other reasons. Buying a home involves many expenses other than the purchase price, and if you have to resell too soon, the value of the property may not have the time to grow sufficiently for you to recoup these expenses,” he says.
“So if you move frequently for work or like to travel a lot, you would probably be better off continuing to rent for now.”
2. All about the money
Albutt says you need to assess whether you are financially ready to buy a home.
“It is not easy to get a home loan these days unless you have a substantial deposit saved, plus enough cash to cover transaction costs such as transfer duty, legal fees and bond registration charges,” he says.
“Also consider the fact that very few homes will suite your needs and lifestyle perfectly, which means that some initial alterations and customisation will be required.”
He says this could include things like security systems, curtains and blinds, additional furniture, painting, gardening and home maintenance tools, extra appliances, and so forth. All of this will add up.
Albutt says it might be beneficial to rent a home when you have just relocated to a new town or country and need some time to find out more about various areas.
“In addition, lenders will want to see that you would have sufficient income left every month to cover the home loan repayment (commonly known as disposable income) after you have covered any other current debt repayments, your regular living expenses and allowed some leeway for interest rate increases and emergencies.”
What is more, Albutt says they will want to see a credit record that reflects a history of paying your debts on time and in full.
“So before you even start looking at homes for sale, you may need to spend some time making sure that you have a decent and sound credit history. Everyone can check this themselves free of charge once a year on the internet," he says.
“And in this regard, it can be most helpful to work with a reputable bond originator that will be able to advise you as to what information lenders will require and what size deposit you are likely to need.
He says a bond originator can even help you to get pre-approved for a home loan so you know how much you can afford to pay before you go into the market.
3. Do you know the market?
Other times in life that it might be beneficial to rent a home are when you have just relocated to a new town or country and need some time to find out more about various areas or when you have just sold your family home and are not sure where you want to settle in retirement, says Albutt.
He says a prudent homeowner buys into a suburb first before identifying the best property.
The advantages of buying
At most other times, however, Albutt says you would be better off buying a home if you can possibly afford to do so.
He says this is because of the following often-stated benefits of homeownership:
- You can contain your accommodation costs to a large degree instead of having to budget for an annual rent increase, or being forced to move if you can’t afford it.
- You can customise and alter the property to suit your own changing needs and tastes according to your lifestyle.
- You will be paying for an asset that is appreciating and at the same time building up equity that you can access if you need money for education, emergencies or further investments.
- You can borrow most of the money needed to acquire a home and keep the profit on the whole purchase price when you decide to sell.
Albutt says homeownership is a financially sound investment and makes both financial and lifestyle sense, but renting a property is a wise decision, regardless of the financial cost, when you either cannot afford to own a home or in the event that flexibility is required.