Lisa Perry the director of PWH Wealth Group and I, recently got into a discussion about renting vs owning a property. I have grown up in a family who always said that buying a property was a good financial decision and it is essential to look at location location location, whilst increasing your property portfolio. Lisa presented me with a completely different prospective. Her opinion is that an expensive bond on your property and mostly paying interest for a number of years, is a waste of money. Rather invest this extra money with a Financial advisor and rent. So I decided to look into this topic and hopefully provide you with some interesting information that I found.
Property 24 listed some pros and cons of buying and renting a home, just as there are to owning a home. Both options have their own advantages and disadvantages, for example renting allows you more expendable money in the short term, while owning a house gives one the sense of security as it is considered a long-term investment. Let’s look at all the pros and cons to help you make a well-informed decision of what will suit you, right now.
Click on the following links to find out the pros and cons:
RollingAlpha.com Rent or Buy Calculator. They have found a developer who has helped put it together – and basically, they are trying to give you a South African version of the American Buy V Rent Calculator that you can find over at the New York Times.
How it works
There are so many variables that affect your decision to buy a house. There’s the price of the house, the mortgage, interest rates, insurances, renovations, transfer fees, capital appreciation rates – the list goes on and on. And because there are so many unknowns, it’s almost impossible to try and work out whether or not you shouldn’t just rent instead.
And this problem gets worse when you try to think about more difficult questions like “How long am I going to stay in the house?” and “But what if I did something different with the money – what impact would that have?”
What this calculator does: it takes you through a list of all the big questions of home ownership, and it calculates the monthly rental you’d have to be paying before it makes more sense to rather buy the place.
The monthly rental cost will shift as you change your answers. So if you wanted to see the impact of a change in the size of your down payment, you can!
The calculator allows you to look at 7 steps:
Step 1: The price of the new place
Step 2: The period of occupation
Step 3: The home loan
Step 4: Return on investment
Step 5: The hidden costs of buying your home
Step 6: The hidden and not-so-hidden costs of selling your home
Step 7: Don't forget the costs of occupation
The calculator is assuming that if you did rent, then you'd actually go and save these extra costs, and invest the deposit. For many people, that's easier said than done. In fact, for most of us, it's a lot easier simply to invest in a house. If that's what works for you - then buy!
Either way, this is a big decision, so consult your financial advisor if you are unsure of what suits your individual situation .