Is it better to Buy or Rent first?

Private Property South Africa
Michael Bauer

When starting out in life as a young professional, the question often arises whether to buy a home or rent while establishing a career, says Michael Bauer, managing director of the estate agents IHPC.

The first questions to ask, said Bauer, is how long the current employment contract is likely to last and would a transfer to another town or province be likely in the near future?

“While everyone would agree that buying a property is always a good proposition to set yourself up in life, it sometimes is not completely practical. You may be paying towards your own bond instead of renting and paying someone else’s bond but if you are transferred or you do find a better job elsewhere, owning your home comes with a few complications – would you sell it or rent it out?

Renting a home to live in for a time, possibly for the first five years of your career, can make sense,” says Bauer.

“It gives you the freedom to move if necessary and, in most cases, you would be able to rent in areas you would not likely to be able to buy in. Most rentals are less than the bond repayments on the equivalent properties in desired areas.”

There are also dilemmas, too, when young couples decide to start a family. They may each own a small apartment, and they may have to sell those properties in order to buy their new family home when moving in together. They might own a home that seems big enough for the two of them but then, when their first child comes along, the home no longer suits them.

They then need to decide whether to sell the current home to upscale to a larger unit or whether to rent it out and buy a second home, said Bauer.

It might be better, he said, to keep the smaller unit (if the bank does not make the selling of this home a condition of granting a bond for the second) and rent it out. The capital appreciation on the first unit will continue to grow and there will be no loss as no transaction costs (such as an agent’s commission, capital gains tax, legal fees, bond cancellation fees) will be paid.

“The drawback of keeping the smaller unit would be the tenant management but this could be overcome by appointing a rental agent to manage the rental rather than trying to do it yourself,” he said.

“All in all, it is best to own your own home, but if the chances are high that you will only be living there for a short time, investing in a property would not be a good idea. A good strategy to investing is always to keep in mind that it is a long term investment and anything less than five years spent in a home will end up losing you money in transaction and moving costs.”

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