Renting or Buying Property

No matter what a person’s life stage is, many of us have stood facing this question – is buying or renting property the better option? The answer is: it depends. Let us look at some important things to consider when trying to determine if renting or buying property is the best decision for your situation.

Benefits of owning property

  • Owning property allows you the freedom to make changes to a property that you believe will increase your quality of living. You will have the creative control to make renovations and décor or landscaping changes that suit your style.
  • There are possible tax deductions that property owners qualify for on income-generating property.
  • Property may increase in value over time allowing you to sell the asset at a profit. The first R2 million profit made on a primary property will be exempted from the gains considered for capital gains tax.
  • Owning the property that you live in may provide long-term security since no landlord can force you to move if they want to terminate the lease. Some people may find great comfort in this stability.
  • A property can be used as collateral for other loans allowing you to get access to more funds. It is however advised to be careful when using a primary property as collateral because it can destabilize your financial situation if you lose your house.

Disadvantages of buying property

  • Owning property comes with big financial responsibilities that include the repayment of a bond, monthly costs such as security, insurance, levies, rates, taxes, etc. as well as regular maintenance.
  • It is not guaranteed that the property will be profitable when it is sold. Many factors may play into this such as the health of the economy that will be reflected in inflation and interest rates as well as how long you held the property and factors reflecting the well-being of the neighborhood the property is located in.
  • Homeowners will not have as much flexibility compared to should they have been renting the property when the property no longer suits their life changes. Perhaps they may need more space when an elderly relative needs to stay with you or if there was an unplanned pregnancy. Perhaps the employment situation changed, requiring them to move to another province or even country. They will most likely have to first sell the property before they can move, which can take some time.
  • Buying a property requires substantial upfront capital to pay various costs and taxes, such as transfer duty, bond registration, and conveyancing fees.
  • If the property is owned with a portion held to be rented out to supplement bond repayments it needs to be considered that tenants may damage property or can be in a situation where they can’t pay their rent.

Advantages of renting property

  • Tenants aren’t responsible for any maintenance of the property, nor monthly costs such as insurance, levies etc. It is important to note that although they may not directly pay these costs, it is usually factored into their monthly rent. The biggest benefit is that major risk events, such as a geyser bursting or a roof leaking, is not for their bill but for the owner to cover.
  • The big upfront lump sum required for transfer duty, conveying fees and bond registration when buying property is not required when renting property, and can therefore be invested in investments that return good returns over the medium term.
  • Renting property provides flexibility should the tenant experience life changing events such as emigrating or having children.
  • Renting property can provide you with an opportunity to live in an area you would not have been able to afford otherwise.

Disadvantages of renting property

  • Tenants don’t have the freedom to renovate property to suit their needs and style.
  • Tenants are bound by the lease agreement and there is no guarantee that a lease will be renewed when it expires.
  • Annual rental cost may fluctuate meaning the tenant either needs to re-budget, renegotiate or find another property in their price range each year. This also leads to renting property being a less stable option compared to owning property.
  • There is no possibility of creating wealth when renting property, because there is no asset acquired to possibly sell at a profit in the future.

The question of whether to buy or rent property is one that needs to be answered with your specific situation in mind. If you are financially able to buy a property that will meet your current and future needs and want the stability of property, it might make sense to buy property. If your future situation is uncertain or if you can’t afford to buy the property that you want to live in over the medium to longer term, it may make more sense to rent property.