Car or flat? How to be smart about your choice

Private Property South Africa

Many young people starting out their careers are faced with the choice of buying their first car or their first apartment.

“And the answer might not be as straightforward as you might think,” says Shaun Rademeyer, CEO of BetterLife Home Loans, SA’s biggest mortgage originator.

Pros and cons for both

“On the one hand, a car might make it easier for you to get around and improve your job prospects. You also need less cash upfront to buy a car and the shorter loan tenure makes this a less scary purchase”, says Rademeyer. “On the other hand though, a car is a depreciating asset while a property, generally speaking, will continue to appreciate in value and be worth more when you sell it than when you bought it. What’s more, if you choose the right property in a location that enables you to use public transport instead of a car, you can probably pay it off a lot faster.” However, people are all different and there is clearly no one-size-fits-all answer to this question.

Things to consider to make the best decision for yourself

Considering the following issues can hopefully help you to find the right answer for your circumstances:

  • Which do you need more?

You might want both but which do you really need more? If you are living with family or renting cheaply with roommates but that means a long commute to work, you may feel that you really need a car right now. However, you should sit down and work out whether your current rental option is really the most cost-effective solution – and whether you plan to continue with it for the next few years while paying off the car. If you did not have to pay for a car, maintenance and insurance, for example, you might be able to live close to work even if you did have to pay more rent. In that case, you might even be able to save enough to buy a car for cash or even buy your own apartment sooner than you thought.

  • What can you afford, realistically?

There is often a big difference between what we want and what we can afford. If you decide that you would rather have the apartment, for example, you will need to save enough cash for the deposit and transaction fees. You will also need to make sure that you can comfortably afford the bond instalment, the monthly levy, the property rates and the insurance on your current earnings. If your finances won’t stretch to this right now, you will no doubt make choices that will help you either to boost your earnings or cut your living costs and start saving.

  • Consider your lifestyle

Some people really don’t mind renting but hate travelling on public transport, for example, and would always choose the car ahead of the apartment. For others, having a place they can call their own and not having to worry about annual rental increases is much more important, so they will naturally do whatever they can to buy the apartment and worry about a car much later. You need to be honest with yourself about what your personal priorities are and make your choice accordingly.

Deciding to buy a car or a flat are big decisions, not to mention huge investments, so you need to think long and hard before taking the plunge either way.

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