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Mortgage and Property Buying, Make a Smart Move
By arlene | October 7, 2008
Buying a house — especially your first one — is always a big step. It brings about a huge financial responsibility and much consideration is necessary before you decide to buy a house. There are however, many good reasons for buying your own home. These are a few:
Investment
Buying a home is much more than just procuring accommodation. It is probably the largest and most significant investment you will make up to this point in your life. More people have become wealthy by owning real estate than through any other type of investment.
Property has shown an average year-on-year growth rate of 11.5% per annum over the past 15 years. Such sustained and consistent growth warrants the belief that this growth rate will be maintained in the future. It is therefore very likely that the price of a house or other residential unit will increase substantially in the coming years. Residential property offers guaranteed capital growth due to two factors — the limited availability of land suitable for residential development and the fact that new construction is always at current prices.
Unlike other investment types, residential property is useful.
You can live in it, which you cannot do with a stamp collection or stock portfolio. If you were to purchase a second home, it could be rented out, producing income as well as capital gain.
Although property might not grow as spectacularly as shares on the stock exchange sometimes do, it will seldom show the dramatic declines often associated with the latter. Buying property is a steady investment, free of the volatility of other investments such as shares.
The future cash flow advantages and relative stability of buying vs. renting:
Your home loan repayment remains more or less the same (subject to interest rate fluctuations).
The monthly rental will increase every year. (Rental escalations are a part of life, rising at an average of 10% per year.)
So, although it might be cheaper to rent initially, it will soon become more expensive than buying your own home.
A monthly contribution to your financial freedom
Unlike rent, the money you spend to repay your home loan each month goes directly towards purchasing your own valuable asset. This way you save a large amount of money over time.
You should also remember that over time, your home loan repayments will stay more or less the same, taking into consideration interest rate fluctuations. As a tenant, however, your rent will increase every year.
Building wealth
This following graph clearly illustrates the wealth-building potential of property.
Over time, the following will happen:
- The value of your property will appreciate, as depicted by the line moving upward over time. Although it is impossible to accurately predict the rate at which the value will grow, it can confidently be expected that it will be worth much more in future than what you paid for it.
- The second line, going downwards, shows the reducing trend of your outstanding home loan. Over time, as you make regular monthly repayments, your efforts will result in the outstanding amount of your home loan getting smaller and smaller.
Be in control of your destiny
Probably the best argument against renting is the fact that you are not in control - the landlord is. When you purchase your own home, you have control of your life and your future.
A sense of belonging
Owning a home involves you in the welfare of your community. You may feel a greater sense of belonging and permanence by owning your own home.
Turn your house into a home
Once you own the house you live in, you can change and improve it to your liking. You can stamp down your own style and ensure a comfortable lifestyle without any outside interference.
Profit from “gearing”
Gearing means that you are using someone else’s money (like that of the bank who gives you a home loan) to acquire an asset while you get the total growth on the investment.
An example of gearing is when you buy property with a home loan. Because of the increase of house prices, the value of your home will soon be higher than the value of your home loan. Despite the interest you will have to pay on your loan, you will still make a profit when you sell your home. All the money from the sale, after you have repaid the bank, is yours.
The “feel-good” factor
In the end, nothing is more rewarding than saying, “This house is mine - I own it.” Pride of ownership is within reach of most South Africans. And rightly so!
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- New Housing Subsidy System Part 2
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- The Future is Networks continue...
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Topics: Africa, Development, Investment, Land, Property, Rental, Residential, Sale |
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