No matter what the market statistics show us, at any point in time, investing in property is something that many people dream of doing one day. Not only because of its high growth potential and financial gains but many people dream of making this big decision to build a dream home of their own. Some people may argue that it is often cheaper (or easier) to rent rather than to buy, but the reality is that often you lose more by renting rather than buying, especially if you look at long term financial gains and investments.
We have put together a few reasons why it is probably a good idea to consider buying your own home, whether it’s for you and your family or as a financial investment piece to receive an additional form of income.
1. Wealth Creation
Buying property is one of the best ways to increase your personal wealth profile and additionally grow your financial portfolio. By investing in an asset (which doubles as accommodation) that increases in value is a huge milestone for any individual. Additionally, you can borrow most of the money needed to acquire a home and retain the profit on the whole purchase price if you decide to sell (the smart way).
Notably, first-time buyers who earn between R3,501 and R22,000 a month have the added advantage of being able to apply for the government’s Finance Linked Individual Subsidy Programme (FLISP) subsidy. This can significantly lower the cost of owning a home.
Furthermore, you can make some extra income on the side by renting out any extra space you may have. For example, you could make an additional rental income through a spare bedroom, garden cottage, or lease out the entire premises out (provided you have a place to stay elsewhere) and earn an extra income.
2. Bond Reduction Builds Equity
Each month, part of your monthly payment is applied to the principal balance of your loan, which reduces your obligation. The way amortization works, the principal portion of your principal and interest payment increases slightly every month. It is the lowest on your first payment and highest on your last payment. On average, each R100,000 of a bond will reduce in balance the first year by about R10,000 in principal, bringing that balance at the end of your first 12 months to R99,500.
3. Renting vs. Bond Repayments
A great advantage to owning purchasing a home is having control over your accommodation costs and not being subjected to annual rental increases (or uncertainty if your lease will be renewed). It also means you don’t have to worry about being obliged to move at an inconvenient time, or when you can’t afford it. If you are renting, there is always a possibility that your landlord will decide to sell the home you are renting or may want to occupy it himself at the end of the lease agreement.
Rental increases generally range from 4% to 10% a year, so your accommodation costs will increase accordingly if you are renting. Monthly bond repayments, on the other hand, are fixed for the lifetime of the loan, which can be up to 30 years. Even if interest rates increase over that period the monthly instalments are unlikely to increase by as much as 10% – or even 4%.
4. Equity Loans & Collateral (i.e. Mortgage)
Equity refers to the difference between the market value of a property and the amount you still owe to the financial institution that holds the mortgage. Once you reach equity, you can use your property as security to raise money to start a business, invest in more property or pay for further education for your children – or yourself.
If you have an access bond facility on your mortgage loan, you could use this to finance high-cost items such as a new vehicle. Interest rates on vehicle finance plans are usually much higher than bond interest rates, so a mortgage access bond is often a preferred way of borrowing cash to finance vehicles. However, do consider your financial obligations and interest rates carefully.
5. Pride of Ownership
Pride of ownership is the number one reason why people seek to own their homes. It means you can paint the walls any colour you desire, turn your music up, attach permanent fixtures, and decorate your home according to your own taste. Homeownership gives you and your family a sense of stability and security. It’s making an investment in your future.