Among the most basic needs in life is shelter, a roof over your head. But finding a suitable place to live can be a daunting task. Whether you are looking to rent, buy or build a house, there are many considerations to make and questions to answer.
If you ask most people who do not already own a home, they will tell you that they are working towards it. This is because home ownership is viewed as one of the ultimate achievements in life, across many cultures and countries.
However, there are those who do not find sense in buying a home all together, choosing to invest their money in other areas, such as stock markets for instance.
James Ngane, a financial advisor and director of Cymes Consultants, financial advisers, says there are three key factors to consider, whether buying or renting, to ensure you make sound decisions.
Asking yourself this very simple question before settling on either decision is very important. How long do you plan on living in a certain location? What are your needs and those of your family if you have one?
When buying a house, you must make sure you are willing to commit to long-term homeownership before making any decisions. If you think it is time to settle down and start a family or build a career in a specific company or location, then you should highly consider buying a house.
If you still think that there is much to see in this world or if you are not sure about your career choices, then renting is most likely the best option for you, as it provides you with greater flexibility.
Whether it is access to infrastructure and public transport, emergency services, social amenities such as hospitals, shopping malls, supermarkets or restaurants, or the security of your residence, picking a location to live in is vital.
If you pick a location that is not suitable for your needs while renting a house, you can always move out and pick a better choice, however, this incurs more cost, is time consuming and adds to the stress of having to find a new home all together.
When buying or building a house, however, the pressure to pick a proper location increases, as this is a long-term commitment. Besides the mentioned considerations, one must also consider appreciation rates of the property, especially for those looking to build wealth through home ownership.
It is important to always keep in mind that the convenience, privacy and peace you will get in your home is determined by the area in which it is located.
Budgeting within your income bracket is very important because it ensures that you do not stretch your income beyond what you can bear. Also bear in mind that the location of the house directly affects its cost, whether buying or renting, with houses located closer to major roads, social amenities and better environments having a higher listing, generally.
You should be able to meet your monthly obligations, such as mortgage repayments if you are buying the property, or rent payment obligations - your rent should not take up more than 30 percent of your net income.
Alex Moseti, a property valuer at Cambrian Valuers, says that after you have gone through these key factors, it is then time to consider the advantages and disadvantages of renting or buying your dream residence.
The real estate industry is packed with enticing offers, but equally present is the fraudulent cons in the market looking to fleece you of your hard earned money.
Before committing yourself to this long-term investment, it is very important to do due diligence on the property you want to acquire. Involving professionals such as land valuers and legal experts is important to ensure you get value for your money, and to ascertain ownership. They will also help ascertain that the house does not have any hidden pending costs which you inherit.
Pros of buying a home
Good long-term investment: if you are looking to settle down permanently, buying a house makes a lot of financial sense. It is a good way to create wealth if the property appreciates in value, as you can sell it at a much higher price should you feel the need to change locations in future.
You can also rent out the home for monthly profits
Building equity: your equity is the difference between what you can sell the home for and what you owe. Equity grows as you pay down your mortgage. Over time, more of what you pay each month goes to the balance on the loan rather than the interest, building more equity, which you can tap into as collateral for home equity loans or credit lines.
Greater privacy and freedom: owning a property means more control and subsequently more privacy and freedom. You are able to redesign, redecorate or make any adjustments to the house guided by your preferences whenever you want.
Stability and settlement: buying a home can give you a feeling of stability and settlement, as people tend to stay longer in a home they buy, if only because buying, selling and moving is difficult. In case of loss of financial income where one does not have any mortgage obligations, owning a house cushions you as compared to renting, where you could potentially be left homeless.
Tax benefits: if you take a mortgage, you will get to enjoy tax soothing effects in allowable deductions, which basically means you get to pay lesser tax.
Cons of buying a home
Less mobility and flexibility: buying a home ties you down. In cases where you need to move, say you got a better job in a different location or country, you want to transfer your children to a different school that is not within your vicinity, or unexpected developments came up in your neighbourhood due to ignorance of zoning laws, it becomes much more hectic to sell or lease your home and move out.
Loss of value on property: land rarely depreciates in value but in cases where it happens, or the value does not change, you might not get the desirable returns if growing wealth was the intention. If you are paying higher interest rates than the land appreciation rates, it means you are losing money on the investment. Similarly, if you sell a house for the same value as you bought it 20 years ago, factoring in fluctuation adjustment rates, it means you sell at a loss on your investment value.
More responsibility: owning a house means you have to undertake home improvement projects yourself. You are responsible for maintenance and upgrading costs, unlike those who are renting.
Financial impact and predictability: unlike renting where your payments are constant and only reviewed yearly or as the lease agreement reads, it is difficult to predict expenditure while buying a house. Besides the mortgage payments, you might incur unforeseen spending such as repair costs.
Hard sell: as land is a liquid asset, selling it may not be as quick a process as one might expect. This is especially critical to bear in mind for those looking to grow their wealth by selling their houses in the future.
Before moving into a house, it is important to read and understand the lease agreement and what is expected of you as a client, and what you expect from the owner. Such issues as the party responsible for repairs, deposit repayment terms, rent review periods and deadlines for rent payment and penalties accrued for late payments, are all very important to understand before signing the agreement.
Pros of renting a house
Flexibility and freedom: renting a house gives you the leeway to change locations and move out whenever you want, especially if you are on a month-to-month lease. You are free to change environments if your tastes change, or if the location you are living in is no longer conducive.
No repair costs: your financial obligations are lower, as maintenance and repair costs are catered for by the landlord. It is important to make sure this is listed in the lease agreement however, as some agreements state that repairs are to be carried out by the tenant.
Lower monthly payments: rent payments are relatively lower than mortgage payments, even for identical houses. This means your financial stress is lower and you can invest your money in other projects.
Low upfront costs: there are no down payments when renting a house, except for a security deposit which is one month’s rent in most cases. You do not have to finance costs required to get a mortgage and other ownership charges such as consultancy fees and land taxes.
Cons of renting a house
No modifications: as rented property is not yours, you cannot make cosmetic modifications such as repainting or redesigning the house to your taste. You are therefore forced to adapt to the owner’s tastes.
You are not building value: when you move out of a rented house, all you take is yourself and your belongings. You grow the equity of the owner, as a rented property can be your home but not your asset.
No credit score improvement and tax benefits: as you are repaying your mortgage, you grow your creditworthiness, a benefit you do not get from making monthly rent payments. You also do not get any special tax exemptions, except the general relief given to all taxpayers.
Less stability: as you are bound by the rules and obligations in your lease agreement, your freedoms are curtailed to an extent. The property owner can decide to evict tenants and sell the property to take advantage of profitable market trends.
Conclusion: to buy or to rent?
Of the two options, the preference often veers toward ownership. This is because it is a big business opportunity for many people, from mortgage lenders to real estate agents to home improvement stores. We are therefore bombarded with the message that being a homeowner is the key to happiness, forming part of most, if not all, of our dreams.
However, owning is not universally better than renting, nor is renting always simpler than owning. It is a matter that requires decision making, analysing the pros and cons of each and figuring out which works best for you, based on your current and future needs. We have made the work easier for you, now make a decision.