Should I Buy a Home or Rent?

My partner and I had been living happily in our pet-friendly rental for the last four years when the bombshell dropped: our landlords were selling our ‘home’ and giving us our 3-month notice.

Other than the obvious discomfort of having to pack up all our belongings and animals to move somewhere else, this situation also posed a difficult question: should we continue renting, or look to buy a home?

Always ready to use this as an opportunity for some content for Francly Speaking, I sat down with our COO, Seb Patel – who bought his current home 18 years ago – to chat about the pros and cons of renting versus buying, unpack the costs you’ll have for both options, and finally, to drill down on the 3 questions you should ask yourself before you make the decision.

Watch the Francly Speaking episode about Renting versus Buying Property

The pros and cons of renting

Different situations have different advantages and disadvantages, but here are a few pros and cons that are common for most renting setups:

Pros of renting	Cons of renting
You’re relatively flexible. You can decide to move to another city or neighbourhood at a whim, and either wait out your lease or give in your notice. This is a great option for a young professional who is still figuring out what lifestyle they want.	You have limits when making a ‘home’. Unless you have a very lenient landlord, most rentals limit what changes you can make to the house, and even what pictures you can hang up.
You pay less insurance. Other than household insurance for your furniture and belongings, the house insurance is the responsibility of the landlord.	You’re reliant on the landlord for fixes. This is both a pro and a con. On one hand, it’s great that you don’t have to pay for that burst geyser. On the other hand, you have to wait until they’re ready to replace it.
Your rental is a fixed cost. Most rental contracts outline a potential 10% annual increase. Other than that, you know what your monthly rental is and that it’s not going to change. As a wise man once told me, “in the case of a rented property, your rental is the most you’ll ever pay. In the case of buying a house, your monthly repayment is the least you’ll ever pay.”	That money isn’t going to grow. While your deposit might be sitting in an interest-bearing account, your rental money is a hard cost going straight into your landlord’s pockets. You’re never going to see a cent back or growth on that cost.
You can invest that ‘extra’ money elsewhere. Your rental is likely cheaper than a loan repayment, and your deposit isn’t anywhere near the cost of the upfront transfer fees. You can invest that surplus in other investments.	There’s no guarantee you can stay long term. Much like my situation, you might be asked to leave if the landlord is selling, wants to move in themselves or wants to rent the home to another tenant. Your landlord might also not renew your lease or hike up the rental. You don’t have much choice in the matter.

The pros and cons of buying

In contrast, let’s look at the pros and cons of buying:

Pros of buying	Cons of buying
You’re investing money in an asset. Property as an investment has, over time, shown good and stable growth potential. Like any investment, there are many factors to take into account that affect the value of that investment: schools in the area, for example, or foreign interest and investment, inflation and rising interest rates.	It can be a risky investment. Like any investment, investing in property comes with risk. If something happens in your area that brings the value down, or there’s inflation that prevents new buyers from entering the market, for example, your resale price can take a hit.
You have greater freedom to make it your home. You can knock down a wall (safely, of course), hang up all your art and reinvent the garden. There are no limits to what you want to do to make your bought house a ‘home’.	You have added costs and responsibilities. Your monthly repayment is a serious financial commitment, but it’s only part of your ongoing costs. Every property has rates and taxes, apartment blocks and complexes have levies (and ad-hoc spot levies!) and you need to cover all maintenance costs.
There’s potential for passive income. Whereas rentals often prevent you from sub-letting, you’re always free to rent out a room, a part of your home or your full home to a renter or traveller and make some passive income off it. Bear in mind that this passive income is taxed, though.	The price you see is not the price you’re paying. When you’re browsing Property24, the listing price is only part of the cost. Calculate and add 10% on that, and you’re likely seeing a more accurate representation of the full cost, including transfer fees, bond registration and other fees.
Banks will lend you money to invest in property. If you meet their criteria, the bank might give you a home loan to invest in the house you want to buy. The banks aren’t going to give you money to invest in shares. This is also a great way to build up your credit score (if you don’t default on payments).	If interest rates increase, you’ll have to pay more. This is something homeowners have quite recently experienced: if you bought when prime was at its lowest, without fixing your rate, your monthly loan repayment has likely gone up by 30-40% as interest rates have increased. Unfortunately banks don’t often do a stress test to make sure you can afford this kind of scenario.

Do your calculations 🧮 Property24 has a great online calculator that shows you how much you’re likely to end up paying over different instalment periods, and what your additional transfer fees will add up to. Do your due diligence and make sure you can afford the bottom and the top end of those instalments if interest rates go up.

3 Questions to ask yourself before buying a property

Is there a right or wrong answer to the question: should you buy or rent? In short: no. Each person’s situation is different, which means this decision looks different for everyone, too.

As you probably gathered from the pros and cons, it’s dependent on your financial situation, where you live (and where you want to live in the future), and what your priorities are.

While the ‘right’ decision might not look the same for every person, we agreed on these 3 questions for you to answer for yourself that might help you reach the right conclusion:

Question 1: How long do you plan to be where you are now?

Buying a house is a longer-term decision – you should probably hold that investment for a minimum 5 year period (but really 8+ years) to make up for your transaction costs and see a return when you sell it again. Compare that time commitment to your future life plans:

Will your work move you somewhere else?
Do you know the area well and enjoy the lifestyle?
Do you plan to grow your family and need more space?

Question 2: What’s your financial situation?

Buying a house is a big financial commitment. If you default on your monthly repayments, it can have serious repercussions on your credit score and might end up with the bank reclaiming your house. In contrast, if you can’t afford your rent, you can just hand in your notice.

Buying property requires not only upfront capital but also ongoing income that can buffer you from interest hikes, household emergencies, and the regular mortgage repayments. Here are 3 sub-questions you need to be able to answer before you go into a house purchase:

Are you pretty certain your income will remain consistent?
Have you factored in a buffer for fluctuations in monthly repayments?
Do you have an emergency fund saved?

🚨 An emergency fund is critical if you own a house. It will help cover costs of burst geysers, roof leakages and other emergency repairs, and – in the case of investing in property in an apartment block or complex – cover spot levies. It’s no surprise 30% of Franc investors have an Emergency Fund goal on the app. That emergency fund should be 3-6 times your monthly income.

Question 3: What’s the housing market like where you’re looking?

People often believe that property is a good investment, end of story. There’s an assumption that the value of the property is guaranteed to go up over time (or was that just me?). That’s not always true. Property is a game of supply and demand, and if your house is not in demand – because the area has deteriorated, for example, or there are more sellers than buyers – you’re going to struggle to get the price you want.

Consider whether you’re going to see a good return on a property investment: do you see the area improving and your property increasing in value? Does it have the features a future buyer might want, like a parking? You can never account for unforeseen events (like a pandemic) but there are some general factors you can make a good prediction on.

Whatever your situation, we hope this comparison of the pros, cons and costs will help you to come to your decision. Good luck!