Explore the age-old dilemma of deciding whether renting or buying a home is the right choice for you. Discover the key differences between the two options and weigh the pros and cons. From the drawbacks of renting to the advantages of homeownership, we help you make an informed decision.
As I write, the South African economy is declining. Corruption and crime are at an all-time high. The country’s currency, the Rand is at its weakest ever against most major currencies. To most, the country’s future is bleak. As a result, most homeowners are selling.
With “FOR SALE” signs dotting the suburban landscape, in real estate jargon, South Africa is a buyers’ housing market. Due to so many homes being for sale, prices are depressed for sellers, and at bargain levels for buyers and renters alike. That as it may be though, renting or buying, which is the right choice for you?
So, is it a good idea to buy or rent a house in mid-2020s South Africa?
Depending on your personal, financial, and social circumstances, this can be a tough question to answer. Not only from a financial perspective but also from lexical and practical aspects. The two options are quite different, so you need to understand and think carefully about them both before considering either.
Let’s take a closer look at both.
2. Renting or Buying a What’s the difference?
In the real estate context, renting refers to staying or using a house or premises in return for fixed periodical payments. Such payments are usually made by the renter, a tenant or occupant of the property to the owner, for the temporary possession and use thereof. Put simply, when you rent a house, you have to pay a set monthly payment or rent.
Often, rent will increase every six to twelve months for the duration of your lease.
Renting differs somewhat from purchasing a home.
When you purchase or buy a house, you can either, your finances permitting, make a once-off, cash payment to the owner for the permanent possession of the house. Alternatively, depending on your credit rating, you can approach an appropriate registered financial institution, and apply for a home loan, often called a bond or mortgage to purchase a house within the value of the loan/bond.
Beware though, while receiving a home loan/bond/mortgage is the easiest way to become a house owner, you must repay it monthly over some 20 years. Added to this, the mortgage repayments you must pay monthly might fluctuate depending on interest rates.
However, please note, that the house you purchase will only continue to be legally yours for as long as you keep up with the monthly mortgage repayments. Mortgage repayments can sometimes take between fifteen and thirty years.
In addition to mortgage repayments, purchasing a house usually also means paying property taxes and home insurance every year or monthly.
So, should you rent or buy a house?
Well, while aspirations to own a house are attributed to a set of financial and non-financial benefits, to best answer this question, let’s look at and weigh the positives and negatives of both.
3. Renting vs. Buying: Pros and Cons of purchasing or renting
Still sitting on the fence about whether to rent or buy a house, let us consider the pros and cons of each. When finally deciding between renting and buying a house, it is important to understand the advantages and disadvantages of each.
However, please note that by default some of the pros of renting are also the cons of buying and vice-versa.
- Pros of renting
a) Renting a house is more flexible – You can move once you give a month’s notice if you want to. So, if you are planning on living in the same place for only the next three to five years, then it is advisable and better to rent.
b) No need to do house repairs- You don’t have to worry about house repairs unless you are the one who has broken something that needs fixing. Otherwise, regular house repairs are the responsibility of the owner unless, of course, as I stated earlier, the damage has been caused by you!
If ever the need to clean up or repair arises, Speedy Steps Home is HERE to help.
c) Best for first-time home builders- Renting a house is most advisable for newly-weds. That’s because it is a good option for those just starting and don’t have the money to buy a house yet. Or those who have never lived alone before. Renting is good practice in this regard. Just in case it doesn’t work out, you can always move back in with the folks.
d) No long-term financial commitment – Most importantly, renting enables you to avoid the long-term financial commitment of buying a house. When you are renting, you will not have to pay a mortgage and the related expenses that come with buying a house.
e) No house selling issues-Because renting means the house is not yours, it also means that you will not have to worry about selling the property if you should change jobs or decide to move out of the area you are staying.
- Cons of renting
a) A purchased house is more expensive as there are ongoing after-purchase costs.
b) you and your family will have to move every time your lease is not renewed.
c) you will never be able to build equity in the property as it will not be yours.
- Pros of buying
a) Permanency- If you’re not sure how long you’ll be living in the area, it might be better to buy. Purchasing a house means you will be there permanently for as long as you can and want to be. As such, you can put your identity on the house you buy by renovating and modifying it if you so wish.
Normally, renovations and modifications cannot be undertaken by a tenant of rental property, unless with the permission of the house owner. Which leads to the next pro of purchasing a house.
b) Freedom – Purchasing a house effectively means you are free to do as you please you have sectional ownership, of course. You don’t have to worry about asking the owner’s permission or s/he to make decisions for you.
d) Stability and Security – If you have a large family, buying a house often means stability and security for them. In such circumstances, buying a house may be the best option for you.
e) House=Investment. Depending on the future resale value of your property you can consider it and build equity in the property as it will be yours. Buying means that you can take advantage of the future appreciation in the value of your home.
According to Mostafa and Jones (2019) in countries such as the UK, buying has always been “financially superior to renting”, even over very short periods.
f) Tax Break – Depending on where you are in the world, buying a house means you can deduct the mortgage interest and property taxes from your income, which will lower your tax liability.
- Cons of Buying
a) If you buy a home, you will have to pay closing costs and selling costs when you sell the home.
b) You will also have to pay the mortgage interest on the money you borrow for the purchase.
c) Buying a house as an investment often means that you are concerned about its resale value.
d) Need more room? You can’t simply move. You will have to either renovate or sell to move to a bigger house.
Final Word
Carefully considered, whether you buy a home, you will have to pay closing costs and selling costs when you sell the home. And while renting does have its flexibility, it also comes with added instability and insecurity. Overall, however, each of the two has its time during our life’s journey.