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Rent rather than buy
09 Nov 2012
Rent rather than buy
Don't rush into buying before you have your short term debts paid off and a deposit saved up.
In the current property/ rental market it is possible to rent for less than it would cost to pay off a bond on the same property. This means that renting a property and investing the difference between the rent and the bond repayments on the same property could result in you making more money. This money could then be used to put down a deposit on a house.
The difference between the monthly rental and the bond repayments will vary depending on the value of the property. The higher up the price ladder you go, the higher the percentage difference between the bond instalment and the rental.
The key thing to keep in mind is to rent a property that you could actually afford to buy and ensure you have the financial discipline to save the differential amount of money. South Africa is a nation of poor savers and the extra money is likely to end up being spent at the mall rather than being invested wisely.
Now may be a good time to rent rather than buy, and this applies to all segments of the market. But this investment strategy seems to work best at the top end of the market, where the difference between the rental and the mortgage bond repayments is greatest. In other market segments, it may be difficult to rent a property that has a rental yield below six percent.
The decision to buy a home is not purely financial; it is also very much a “lifestyle” decision.
Eliminating major debt, such as a home loan, as soon as possible should always be your priority. But it becomes an impossible goal for people who are financially stretched.
Many people fall into the trap of buying to the limit and living beyond their means, so they can never pay more than the minimum mortgage bond repayments. When you invest in property, you should always buy what you can comfortably afford.
Tenants have negotiating power and they can always move out and find cheaper accommodation, whereas a landlord is beholden to the bank, and a tenant paying rental that doesn’t cover the bond is better than no tenant at all.
Good landlords are also willing to negotiate rentals in order to keep good tenants.
For further information please contact BondBusters on 0861 287387 or have a look at our website www.bondbusters.co.za.
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BondBusters is a member of the IDM Group.
IDM offers integrated financial consultation to consumers on their debt matters by facilitating intelligent solutions between lenders and borrowers.
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