Buy or Rent: how to know what's right for you

Owning their own homes is one of the most common financial goals listed by South Africans and the interest rate drops last year has brought buying a house to the forefront of many people's minds. But choosing to buy a property is a big decision and comes with big costs that you might not expect. While buying might be your dream, sometimes renting makes more sense. So, how do you know if renting or buying is the better bet for you?

The standard logic is that renting a home is wasting money - you're paying your hard-earned cash to someone else so that they can build their assets. And, while this is true, it's not as clear cut as that. Buying comes with its own share of "wasted" money: the transfer costs alone are often significant and is money that you don't get back, but you also have to pay the bank interest on your bond.

If you apply for a bond on a R1 million home today, you don't pay any deposit and you have a 30-year bond then you'll likely end up paying R2,7 million for the home overall - if not more. If you add on transfer costs, your R1 million home is costing you closer to R3 million by the time you pay it off.

That means that you have to hold on to the property for a long time before you're able to get a good return on your investment: if you wait 30 years before you sell, you'd only make a profit of about R700 thousand on the investment.

Of course, selling earlier is also an option. When you do this, you pay less interest on the bond because you're paying it back faster than the bank expected you to. But early sales come with a different set of trade-offs: your house may not have increased in value enough to offset the transfer fees you paid when you bought it, and you still have to cover the costs of selling the home again.

Home ownership also comes with a host of other risks: repayment values fluctuate depending on the current interest rate and all maintenance and repair costs fall on the owner. If a geyser bursts or a roof leaks, you're the one who will have to pay to fix it. When you rent, your rental costs are fixed every month and your landlord takes on the costs of any repairs.

Of course, there are things about renting that aren't great either, although most of those don't boil down to costs. Once everything is said and done, buying a property is still an investment - with all the risks and benefits that come alongside that. If your income allows you to handle changes in your repayment amounts, and you have some savings for emergencies then buying a home might be the better option for you. If you do buy, it's a good idea to keep the property for at least 6 years before you sell it again, allowing for the property value to increase enough to offset the transfer costs of buying and selling it.

Renting is probably a better bet if your household budget means that sudden changes in expenses are going to be difficult to manage, or if you're not able to handle big emergency costs. Renting usually costs less than buying in the short term, so putting the extra money aside and saving up a deposit for your home will help you reduce the interest rate costs of buying one day.

Wherever you are in your life, the biggest question to ask yourself when it comes to buying versus renting is, "how much risk am I willing to take?". If you're willing to take on the costs of buying a property, and the risks that come alongside it, there are very few things that are as rewarding as seeing a building become a home.