RENTING VS BUYING A PROPERTY

Is it better to rent a property and pay off someone’s bond?

Or is it better to own the property?

Certainly, we all know it is better to own a property, but not everybody is in a fortunate position to buy.  A bad credit record or affordability are two of the major factors which leave no other option but to rent.

Circumstances like economic factors or the uncertainty about a job transfer, might leave you indecisive.

The price-to-rent ratio would assist you in deciding which option would be the best for a specific property.

It is a simple formula:  PURCHASE PRICE divided by ANNUAL RENT

If the factor is lower than 20, it is better to buy the property.
If the factor is greater than 20, it is better to rent the property.

Example 1:  Two bedroom flat in Sunnyside is selling for R500 000, but you have an option to rent at R7 500 per month.

Let’s calculate the ratio on the example above:

R500 000 (Purchase Price) divided by R90 000 (Annual Rent) = 5.5

It is certainly better to buy.

Example 2:   3 Bedroom house is selling for R4 000 000 in Silver Lakes, but you can rent at R12 500 per month.

R4 000 000 divided by R150 000 = 26.6

It is certainly better to rent this property.

Source: https://www.investopedia.com/terms/p/price-to-rent-ratio.asp

Should you have any queries or would like more information on this topic you are welcome to contact our Property Practitioner, Liezel Britz on 079 298 0924.