Rent vs Buy

D

Dr Who

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Hi All

Please see article on Business Tech website. http://businesstech.co.za/news/busi...-buy-a-house-use-this-calculator-to-find-out/

The actual website referenced does not work at present due to high traffic volumes, but I am interested to hear everyone's view.

I have been doing some rough workings and I have come to the conclusion that if you buying property over R4mil its better to rent vs Buy, but under its better to buy vs rent. In my calculations i have tried to look at inward and outward transfer/sales costs, interest costs, fees etc. I get to a figure that a R4mil property must increase by 20% to break even on actual costs.

So I am currently looking at renting a house ( should I ever be able to in that price range ) but owning rental stock ( flats ) of between R1m and R2mil to make up the rest.
 
I rented most of my life and invested money. I went on early retirement and can now buy a house cash. I will not do so as it will mean that I will be stuck in a rut as I will not be able to just up and leave to new destinations.

Buy to rent is a big no no in my books. The upkeep and legal fees trying to get non paying tenants out is just too much hassle.
 
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For me I'd say rent.. ownership seems ok once you want to settle down more permanently.

To me it seems a question of whether you want to manage a cash flow (rental based) or investment style income.. or save directly to asset accumulation taking loan costs and opportunity cost.

One thing which is very apparent though is that, much like leasing vehicles or using balloon payment, if you do not use the financial tool with savings difference you will make a loss.

The problem not always highlighted by spreadsheets is that not everyone can afford to save difference between rental and owning this incurring upfront loss. The way I've always seen it is that I consider pension/ra as part of saving initially for the 1st 5 yrs of working life (especially with max now being 30%, remember when u living month to month in 1st few years it's tough as there are small asset/liability costs to go past).. also consider extra study as investment (in wealth creation, you investing to increase income no?).

2ndly if you look at life as a business.. there is very little to reason to buy unless you have the cash upfront which you will later in life.
 
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I rent. Have thought about buying numerous times but never actually done it. The numbers just never add up and the freedom that comes with renting is hard to give up. My girlfriend is busy selling her house and it's clearly been a financial mistake for her.

I invest every month so one day when a bargain comes along I'll be able to put down a very big deposit or pay cash if I need to.
 
If I look at my own experiences I currently own 2 properties in 2 different cities. Both were purchased when I assumed that I would be living in that city long term. In city 1 which I have owned for 9 years I have made a compound return on capital of less than 4%. I have had tenants in the place for 3 years now.

In city 2 I have owned for just over 2 years and the property has appreciated 76%. Lucky city 2 was for a higher price and is my current residence. Just shows you how you can never predict the market. However would I buy a bigger place now, probably not. Would I rent now almost certainly.
 
After having owned two homes, I can say that renting is the way to go.
Why?
* So when they target your house, and repeatedly break in, you can move away from that nonsense.
* If the SA government goes full Mugabe, you can just pack up a leave and not be stuck here for 12-18 months battling to sell the place
 
Ownership in Cape Town seems almost impossible. My rule of thumb is always to rent, and investing the remaining amount that I would have paid should I have bought. Hopefully one day I'll be able to just purchase property cash.
 
I see some homeowners keep on proclaiming that they can increase rent by 10% every year. It's utter bullscht and I've never seen it unless we are talking about really expensive places. 10% pa on a place that goes for R8k would see them pay R10,600 withing 3 years... you'll lose those tenants long before that and as a landlord you really want to keep good tenants. One month without a tenant will take about a year to recover from the loss as well.

10% pa increase in rent is the same as an investor claiming 30% pa on the JSE... it happens once in a while and not all the time.
 
I see some homeowners keep on proclaiming that they can increase rent by 10% every year
Click to expand...
They do this indeed. Then they lose the tenants, and don't worry about it, because another sucker is waiting around the corner to bite.
Housing supply falls short of demand, this is why.
 
Randy_The_Squirrel said:
They do this indeed. Then they lose the tenants, and don't worry about it, because another sucker is waiting around the corner to bite.
Housing supply falls short of demand, this is why.
Click to expand...

Maybe it is area specific because here in JHB there is a lot of places to pick and choose from to rent
 
Hamster said:
I see some homeowners keep on proclaiming that they can increase rent by 10% every year. It's utter bullscht and I've never seen it unless we are talking about really expensive places. 10% pa on a place that goes for R8k would see them pay R10,600 withing 3 years... you'll lose those tenants long before that and as a landlord you really want to keep good tenants. One month without a tenant will take about a year to recover from the loss as well.

10% pa increase in rent is the same as an investor claiming 30% pa on the JSE... it happens once in a while and not all the time.
Click to expand...

I agree with you. I got hit with a 7% (and the landlord tried to make it seem like they were doing me a favor) increase. Took it because it was a convenient spot at the time. When I left, she had to take a big knock to below where my initial rental started to just find another tenant! Took her a few months to find a replacement, costing her even more
 
F1ve_Claw said:
I agree with you. I got hit with a 7% (and the landlord tried to make it seem like they were doing me a favor) increase. Took it because it was a convenient spot at the time. When I left, she had to take a big knock to below where my initial rental started to just find another tenant! Took her a few months to find a replacement, costing her even more
Click to expand...

Serves her right... classic case of trading short term gains for long term losses in other words, good old-fashioned greed for money.
 
If you rent with a good landlord and come to an arrangement that you wil look after their place as if it were your own if they meet you halfway with annual rent escalation, keep renting. Any repairs or improvements you make out of pocket the landlord can claim back 100% from SARS and even reimburse you if you can come to an agreement.

What you should do additionally is become a landlord yourself. Buy a small flat and rent it out. After 3-5 years, buy another and rent it out. Repeat. You will thank me in 20 years.
 
What you should do additionally is become a landlord yourself. Buy a small flat and rent it out. After 3-5 years, buy another and rent it out. Repeat. You will thank me in 20 years.
Click to expand...
Yes I know this trick. I also know the trick of registering about 50-100 shelf companies (mostly Close Corporations) as a means to not pay any income tax at all.
 
Hamster said:
I see some homeowners keep on proclaiming that they can increase rent by 10% every year. It's utter bullscht and I've never seen it unless we are talking about really expensive places. 10% pa on a place that goes for R8k would see them pay R10,600 withing 3 years... you'll lose those tenants long before that and as a landlord you really want to keep good tenants. One month without a tenant will take about a year to recover from the loss as well.

10% pa increase in rent is the same as an investor claiming 30% pa on the JSE... it happens once in a while and not all the time.
Click to expand...
Saturnz will be in soon to inform you how wrong you're.
 
Seems like I thought about this completely different to everyone else here. All I see is talk about the numbers, which costs more etc.
Our decision was completely emotional. We wanted a tiny piece of this earth we could call ours, break down walls, paint the floors bright blue and that (theoretically) no one could take from us. We understood the limitations this placed on us (not so easy to up and leave, very costly) but that's why we also wanted it paid as soon as possible. Once we knew that, only then did we try and make it a decent financial decision.
So do what makes you comfortable.
 
Sepeng said:
Seems like I thought about this completely different to everyone else here. All I see is talk about the numbers, which costs more etc.
Our decision was completely emotional. We wanted a tiny piece of this earth we could call ours, break down walls, paint the floors bright blue and that (theoretically) no one could take from us. We understood the limitations this placed on us (not so easy to up and leave, very costly) but that's why we also wanted it paid as soon as possible. Once we knew that, only then did we try and make it a decent financial decision.
So do what makes you comfortable.
Click to expand...

The important part right there
 
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