For some time, property was the most exciting asset you could buy. But that was when house prices increased dramatically each year.
No. Only buy if you are confident you will not sell sooner than at least five, but preferably seven, years. It takes time for a property’s value to grow to the extent that it covers the extra costs associated with buying and selling – and gives you some profit to help you put down a deposit on your next home.
Apart from the bricks-and-mortar, expect to pay for costs like transfer duty to the government, the usual bills associated with moving, commission to an estate agent and possibly, tax.
Is renting just subsidising someone else’s path to wealth?
Yes, it is. When you pay rent, you are paying off an asset that will eventually be owned by someone else and generate a steady income for that person. But the flip side of this argument is: your rent will be lower than home loan (mortgage) repayments; you may need the extra cash for other spending, like getting your own business going. Another plus factor of renting is that your landlord pays for maintenance, insurance and other costs associated with homeownership.
Is it better to rent and invest money in shares instead?
Only if you have the discipline to invest the money you are saving by renting rather than buying. Plus, you need to know what you are doing on the stock market so you can generate a consistently high return.
It generally requires more skill and expertise to make good money on the stock market than it does through buying and selling real estate. History has shown that property and shares should produce similar returns that are better than you can expect to enjoy from other asset classes in the long run, so you won’t lose out if you opt for property instead of shares.
There is another, better reason to opt for property: you can borrow money to buy property, but you generally can’t borrow to buy shares.
Should you be working towards your own property?
Yes. For most people, rent or a home loan is the biggest monthly expense. Over time, this home loan repayment reduces to below what you’d pay in the form of a monthly market-related rental. If you can wipe out this bill, you will free up loads of extra cash for other spending and saving elsewhere.
In addition, every cent you spend on the property is going into your asset, not someone else’s, and no one except you can decide whether to move. Landlords can often give tenants nasty surprises, like notice because they have decided to sell.
When is renting preferable?
Renting is usually a better bet if your job is not secure or if you’re expecting big personal changes, like a marriage, divorce or more children. It’s always quicker and cheaper to move from a rented home than one you own.
By Jackie Cameron. This article was first published in Fairlady magazine. Jackie Cameron is a freelance business and financial journalist, who lives in Scotland. She is the author of personal finance books, including one on property, and award-winning former editor of South African property news site Realestateweb.co.za (Moneyweb Holdings).
Write to Jackie Cameron: firstname.lastname@example.org
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