In an article published on Fin24 earlier this year, it was said that homes are expected to become less affordable this year (2014). John Loos, household and property sector strategist at FNB Home Loans, said the following:
"After six years of improving residential property affordability, 2014 could be a year in which this improving affordability trend is reversed mildly, and in which affordability becomes slightly more challenging," said Loos.
Now, I don’t sell Home Loans – so why is this of interest to me as your financial advisor? Simple. I’m here to help you invest your money wisely; whether it’s with me or not, that’s my métier. When I sit down with you, we don’t only talk about products and investment vehicles: we talk about life. We talk about challenges, family, work and opportunities on the road ahead. So right now, let’s talk about your choice in a home.
When it comes to living arrangements, you have two main choices: renting and owning.
Both have advantages and both have disadvantages. Before we take a quick a look at these, let me put you at ease by saying that everyone is influenced by their family history when it comes to this choice. If your grandparents and parents owned their homes, you’ll likely feel a strong inclination to own your home too. If history shows a penchant to rent, then buying property will probably make you feel uneasy. Both of these backgrounds will create pressure and stress, one way or another.
RENTING A HOME
- Allows significantly more flexibility than owning your own home. This is ideal for those who could be faced with sudden changes such as job relocation. Renting requires no long-term commitment from a tenant, and is the best option if you don’t intend on staying in one place for a long time.
- As a tenant, there is the possibility of living in an area in which you could not afford to buy.
- The only insurance required will be to cover the contents of the home, while all maintenance work on the property is for the Homeowner’s account, as is homeowners insurance.
- After paying rent, you may have additional money which they can use to invest elsewhere, whether it is saving towards buying a house or investing in the stock market, and need not worry about putting additional funds into a home loan.
- You are 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. Issues can take longer to resolve since there is often a 3rd party involved.
- Renting offers no wealth creation or return on investment since the property will never legally belong to the Tenant, and instead, the Tenant is paying towards the Homeowner’s home loan.
BUYING A HOME
- Owning a home offers the long-term benefits of security, equity and potential growth in personal wealth.
- The value of a home should appreciate over time and if you decide to sell, you can earn a profit off the sale.
- Being a Homeowner allows you creative control of your property. You can alter the property, including décor changes, landscaping and renovations, to suit your needs and your style.
- Being a Homeowner who ensures repayments are made on time can improve your credit profile. Not only will you have a large investment to your name, but also paying your monthly bond repayments on time increases your credit score.
- You have the option to refinance your bond amount should you wish to withdraw a large amount of money to pay for major purchases.
- There is an opportunity to save money in the long term as there are possible tax deductions related to income-generating properties.
And on the flipside…
- Being a Homeowner comes with substantial financial responsibility including bond repayments and regular house maintenance.
- There are additional costs that usually include rates, taxes, insurance, and maintenance for which the Homeowner is responsible.
- You run the risk of not making any profit through resale. This is often caused by economic factors such as a recession or high interest rates, or simply through a particular location becoming less desirable.
- You will have less mobility when it comes to being able to move home than a Tenant who rents on a short-term basis. A Tenant can leave a property after fulfilling the notice period, which is usually one month.
However, a Homeowner is likely to be dependent on selling their home before being able to buy a new one, and therefore it might take longer to be able to move homes once the decision has been made to do so.