Buying a home has always been the ultimate symbol of success in life, but is renting for most of your life, or even forever, so bad?
There are, after all, a number of advantageous to living in a rented property; of course, there are also disadvantageous.
Deciding whether to buy or rent a home is a pivotal life choice that can significantly impact your financial well-being and lifestyle both in the short and long-term, and in uncertain economic times, making the right decision becomes even more critical.
The idea of homeownership as the holy grail of adulthood and evidence of success has been ingrained in us for generations, and property still remains one of the best long-term investments, says Cobus Odendaal, chief executive of Lew Geffen Sotheby’s International Realty. So many people are in a quandary about whether to delay the purchase or bite the bullet and get a foot on the property ladder no matter the consequences.
“But it’s not a simple choice as each option offers distinct benefits and drawbacks and with the economic fluctuations, high interest rates, and uncertainties that we’re seeing, it’s essential to carefully assess one’s current financial situation and long-term goals before committing to either option.”
To help with the decision, he lists the advantageous of both buying and renting a home:
Advantages of homeownership
- Building equity: One of the most significant advantages of homeownership is building equity. As you make mortgage payments, you are gradually increasing your ownership stake in the property. Over time, this equity can serve as a valuable asset and a potential source of wealth.
- Stability and freedom: Owning a home provides stability and the freedom to personalize and modify the property to suit your preferences. You have more control over your living space and can make long-term plans without concerns about lease expirations or rent hikes.
- Tax benefits: Homeownership can come with tax advantages, such as deducting mortgage interest and property taxes from your taxable income. These benefits can help reduce your overall tax liability.
Disadvantages of homeownership
- Initial costs: Buying a home requires a significant upfront investment, including the deposit, closing costs, and potential home inspections.
- Ongoing expenses: As a homeowner, you are responsible for all maintenance and repair costs. These expenses can be unpredictable and add to your financial burden.
- Market risks: The real estate market can be subject to fluctuations, and there is no guarantee that your property will appreciate in value over time.
Odendaal also lists the advantages and disadvantages of renting a home:
Advantages of renting
- Flexibility: Renting offers more flexibility compared to buying. Renters have the freedom to move without the burden of selling a property, making it ideal for those who anticipate frequent relocations.
- Lower upfront costs: Renting typically requires a smaller upfront financial commitment compared to buying. Renters may only need to provide a security deposit and first month's rent, while homebuyers need a down payment, closing costs, and ongoing homeownership expenses.
- Limited financial risk: Renters are not directly exposed to potential declines in property value, which can provide a sense of stability in uncertain economic times.
Disadvantages of renting
- No equity building: Unlike homeownership, renting does not provide you an opportunity to build equity or own a valuable asset.
- Rent increases: In some rental markets, landlords may raise rent prices over time, making it harder to budget for housing expenses.
- Limited control: Renters have limited control over their living space. They may need permission from the landlord to make changes or renovations.
Owning a property is a major a commitment and, although our banks are conservative in terms of their lending, Odendaal says a buyer has to factor in a significant margin to cover changes in market conditions which may leave them under financial pressure. Therefore, there are a number of factors to consider when deciding which option is best for you:
- Financial readiness: Evaluate your financial stability, credit score, and ability to afford homeownership expenses, including a down payment and ongoing costs.
- Long-term goals: Consider your long-term plans, career aspirations, and lifestyle preferences. Owning a home may align better with certain life stages and goals.
- Market conditions: Research local real estate market trends and assess whether buying or renting is more advantageous in your area. However, bear in mind that when the market is down, it’s also when one can also find good deals and you may be able to find a property under market value.
- Additional costs and responsibilities: Factor in the costs of homeownership, such as property taxes, insurance, maintenance, and potential HOA fees.
- Opportunity costs: Consider the opportunity costs of buying or renting. For example, if you choose to buy, the funds tied up in a down payment and ongoing homeownership expenses could be used for other investments or financial goals if you were renting instead.
“While homeownership can be a solid long-term investment, it is not a one-size-fits-all solution and you do not have to own your own home by the age of 30 in order to be considered successful.”
He adds: “Remember, the goal should not solely be ownership but rather finding a housing solution that best suits your unique circumstances and contributes positively to your overall financial well-being and quality of life.”
If you are leaving towards buying, however, MultiNet Home Loans offers the following advice:
1. Know your needs and budget before you start house hunting
Make a personal checklist of what you are looking for in your house and how much you can afford to spend.
2. Check your credit history and score before applying for a mortgage
Pay off any outstanding debts and clear any errors on your credit report. A good credit score will increase your chances of getting approved and getting a lower interest rate.
3. Save for a deposit if possible
A deposit will reduce the amount you need to borrow and the interest you will pay over the loan term. It will also improve your bargaining power and lower your risk profile.
4. Shop around for the best mortgage deal
Compare different lenders, interest rates, fees, and terms. Use an online calculator or a bond originator to help you find the best option for your needs.
5. Do your research on the property market and the area you want to buy in
Look at the price trends, supply and demand factors, amenities, infrastructure, security, and future developments. Use online tools or consult with a property expert to help you find the right property at the right price.
6. Hire a professional home inspector to check the condition of the property before you make an offer
Look out for any defects, damages, or repairs that may affect the value or safety of the property. Negotiate with the seller to fix any issues or lower the price accordingly.
7. Hire a reputable conveyancer to handle the legal aspects of the transaction
Make sure you understand all the documents and contracts you are signing. Pay attention to the deadlines and conditions of the sale agreement.
8. Plan for the moving costs and the ongoing costs of owning a house
These include transport, insurance, rates and taxes, utilities, maintenance, etc. Budget accordingly and set aside some money for emergencies.
IOL Business