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When it comes to renting versus buying a house, there is always a debate about which makes the most financial sense. Both sides have valid points, so it can be a bit confusing
 
There are pros and cons to renting versus buying a house. Both options have their own advantages and disadvantages. Let’s look at all the pros and cons to help make a well-informed decision of what will suit you, right now.
 

The Pros and Cons of Renting a Home

Pros
As a tenant, you usually do not have any responsibility to pay extra expenses. Like rates, taxes, insurance and levies. But, if you own your own place, you can easily add another R2 000 to R2 300 per month to cover these expenses.
 
Renting is a more flexible option for moving, too. If your job changes or you want to move to a new place, it’s just a matter of putting in notice with your landlord.
 
Also, the startup cost of renting is usually the more affordable option. The cost of your security deposit is generally much lower than a down payment on buying a home.
 
Cons
A Tenant is bound by the rules of the lease agreement, which can impact the freedom to use or renovate the property. You cannot make changes to a rented property without the consent of the Homeowner.
 
When renting, you will often have to deal with a Rental Agent. Who will then be the liaison between you and the Homeowner. This can result in issues taking longer to resolve since there is a 3rd party involved.  
Renting offers no wealth creation or return on investment. When renting a property, you will have no control over annual rental fluctuations.
 
There is no guarantee that a lease will be renewed when it expires.
 

The Pros and Cons of Buying a Home

Pros
Owning a home offers the long-term benefits of security, equity and potential growth in personal wealth The value of a home will appreciate over time and if you decide to sell, you can earn a profit off the sale.
 
You have the option of buying to rent. Which enables you to generate income from renting out the property.
 
By paying the bond on time you can improve your credit profile. Not only will you have a large investment to your name, but paying your monthly bond on time increases your credit score.
 
Cons
Owning a home comes with significant up-front and ongoing costs.
 
The two main financial commitments you’ll face are your down payment and closing costs. Your expenses for maintenance and emergencies likely will be higher, too.
 
Let’s break it down
  • Deposit:  Banks typically require a 10% deposit on the purchase price of your home. But this can be as much as 30% depending on your credit rating. If you are in the market to buy, you’ll need to have a deposit in hard cash. It is paid upfront and once-off to the transferring attorneys. 
  • Initiation fee: This fee is charged by the bank at the start of the loan (if you take out a bond).  It can be paid upfront and as a once-off fee, or capitalised to your loan amount. The fee is regulated by the National Credit Act and is currently set at a maximum of R6,000 (2019).
  • Transfer duty:  After your deposit, the transfer duty is one of the biggest upfront costs to consider when buying a property. Transfer duty is a tax levied by the government and no property can be transferred to a new owner if this is not paid. The higher the value of the property you buy, the higher the percentage of duty payable
  • Transfer costs: This is the fee that the conveyancing or transferring attorney charges in a property transaction. To register your ownership of the property with the Deeds Office, protecting your legal title to the property. This is paid once-off before registration and is not to be confused with transfer duty.
  • Bond registration costs: For the bank to make sure that they have some form of security over the property. They will register a mortgage bond that confers certain rights on them. This bond is registered at the same time as the transfer of the property.
 
Let’s do a quick calculation:
 
Loan Amount  R 1,800,000
Bond registration costs (incl VAT)  R      36,011
Bond registration cost (incl VAT)  R       28,773
Bank initiation fee (incl VAT)  R         6,038
Post, petties, FICA other fees (incl VAT)  R         1,200
Transfer costs (incl VAT)   R      66,723
Property transfer costs (incl VAT)   R       28,773
Transfer duty   R       36,750
Post, petties, FICA other fees (incl VAT)  R         1,200
 

Total cost of ownership

Owning a home comes with ongoing costs. Such as electricity, water and refuse removal (on your municipal account), garden and cleaning services, maintenance, painting and so on. All need to be budgeted for. 
 
There are many costs associated with your dream home. Doing your financial homework upfront is key to having the peace of mind that you can cope with all the costs.
 

Bottom Line

The renting versus buying a house decision is a very personal one. It’s one you should make with careful thought and consideration of your finances, goals, and needs as a household.
 
A variety of online calculators are available to help you check the financial aspects of the rent-versus-buy decision. But keep in mind that you need to estimate a range of variables, including the number of years you will stay in the home.

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