When looking to buy property, many often look at real estate as a long term investment. Depending on the budget you’ve allocated for the purchase, this can either help or hinder your financial goals. If your credit score is good, you are reliably financially secure and capable of making loan repayments timeously, then buying a house or flat is a great idea.
Residential properties are fixed assets that are likely to increase in value over time. Based off economic fluctuations and the interest rate, your mortgage repayments are predicted to remain stable unless a major drop or hike occurs. If you sell your investment property later, you could also reap a sizable profit - if you are wise about when you choose to sell.
While buying property can be a huge opportunity for diversifying your asset portfolio, there are some disadvantages. The profit you would gain from selling your property under normal circumstances is dependent on a myriad of factors that are out of your control. If you have not owned your property long enough, you will not have accumulated much capital growth.
Due to the ever changing socio-economic climate and unprecedented events, the location of your property and its surrounding areas may also increase or decrease in demand. Safety and security, accessibility and effective service delivery are among the top concerns in South African property markets. A decline in the value of properties in the area indicates a stagnancy that most homeowners would choose to avoid. Buying property is a long-term commitment, whereas renting offers flexibility.
Renting is the first choice for most young professionals with disposable income who don’t want to commit to a bond payment or the decision of having to stay in one area too long. It is an easier financial decision depending on your lifestyle and one that gives you more freedom. Many individuals and families take on rent-to-buy contracts to slowly transition from tenants to owners. Renting in one area and buying property in another is a common arrangement, allowing for more flexibility.
As a tenant, you also enjoy the maintenance of your home being taken care of (as agreed upon in the lease agreement) by the landlord. Ensure all the details have been strictly stipulated to avoid being taken advantage of. The landlord should always remember that it is in their best interest to take care of their investment property. After all, the tenant is helping them pay off a property!
However, the property isn’t your own and you’ll have to respect that certain personal touches and renovations to the property can only be approved by the landlord. Before deciding to invest in any semi-permanent home improvements or additions like shelving or cooling and heating systems, liaise with your landlord to go over the rules.
If you’re planning on setting out a long term plan and know you’re going to live in a certain area over an extended period of time, consider buying a property. Rental payments tend to increase each year and you are only guaranteed a home for as long as the lease stipulates. At the end of it, the landlord might decide to sell the property or keep it for their own, indicating you need to start searching the rental market once more.