Investing in property is something that many people dream of doing one day, regardless of what the market statistics show. Many people dream of making the big decision to build their own dream home, not only because of its high growth potential and financial gains. Some may argue that renting is often cheaper (or easier) than buying, but the reality is that renting often costs more than buying, especially when considering long-term financial gains and investments.
We’ve compiled a list of reasons why buying your own home is probably a good idea, whether it’s for you and your family or as a financial investment piece to generate additional income.
1. Creating Wealth
Purchasing real estate is one of the most effective ways to boost your personal wealth profile while also expanding your financial portfolio. Investing in an asset (that also serves as housing) that appreciates in value is a huge accomplishment for anyone. Furthermore, you can borrow the majority of the funds required to purchase a home and keep the profit on the entire purchase price if you decide to sell (the smart way).
First-time buyers earning between R3,501 and R22,000 per month, for example, have the added benefit of being eligible for the government’s Finance Linked Individual Subsidy Programme (FLISP) subsidy. This can significantly reduce the cost of home ownership.
Additionally, you can supplement your income by renting out any extra space you may have. For example, you could rent out a spare bedroom, a garden cottage, or the entire premises (provided you have a place to stay elsewhere) to supplement your income.
2. Bond Reduction Helps to Increase Equity
Each month, a portion of your payment is applied to the principal balance of your loan, lowering your debt. The principal portion of your principal and interest payment increases slightly every month due to amortization. It’s the cheapest on your first payment and the most expensive on your last. On average, each R100,000 bond will lose about R10,000 in principal in the first year, bringing the total balance to R99,500 at the end of the year.
3. Bond Repayments vs. Renting
Having control over your accommodation costs and not being subjected to annual rental increases is a huge benefit of owning a home (or uncertainty if your lease will be renewed). It also means you won’t be forced to relocate at an inconvenient time or when you can’t afford to do so. If you rent, there’s always the possibility that your landlord will decide to sell the home you’re renting or that he’ll want to move in himself at the end of your lease agreement.
Rental increases typically range from 4% to 10% per year, so if you are renting, your accommodation costs will rise in lockstep. Monthly bond repayments, on the other hand, are set for the duration of the loan, which can be as long as 30 years. Even if interest rates rise during that time, monthly payments are unlikely to rise by more than 10% – or even 4% – per month.
4. Collateral & Equity Loans (i.e. Mortgage)
The difference between the market value of a property and the amount owed to the financial institution that holds the mortgage is referred to as equity. Once you’ve built up enough equity in your home, you can use it as collateral to borrow money to start a business, buy more real estate, or pay for your children’s – or your own – higher education.
If your mortgage loan includes an access bond facility, you can use it to finance high-cost items like a new vehicle. Because vehicle finance plans typically have much higher interest rates than bonds, a mortgage access bond is frequently the preferred method of borrowing cash to finance vehicles. However, you should carefully consider your financial obligations and interest rates.
5. Ownership Pride
People want to own their homes for a variety of reasons. The most common reason is pride of ownership. It means you can paint your walls any color you want, listen to loud music, install permanent fixtures, and decorate your home to your liking. Homeownership provides stability and security to you and your family. It’s like putting money into your future.