Living in your home versus buying to let

2012-05-19 20:10

Buying a property to live in is very different to buying property as an investment

If you are looking for somewhere to live, you will consider factors such as where your work is and a community that provides schools or easy access to shops.

It is largely a lifestyle decision and also an emotional one.

It not only makes financial sense to pay off your asset rather than someone else’s through rent, but there is also an emotional need to know the place belongs to you.

However, you should still apply sound financial decisions and not overpay for the property just because you like it.

Make sure you can afford the repayments as well as all running costs, including electricity, levies and rates and taxes.

Also factor in any potential interest rate hikes. Although the banks prefer you to have at least a 10% deposit, the more deposit you have the better.

You should also buy only if you have a fair idea that you will be living there for at least five to seven years.

When you buy and sell property there are other costs incurred, such as transfer fees and estate agent fees, and it takes time to recoup these through the price increase in the property.

When investing in property your decisions will be very different.

You will need to find an area where there is a high demand for rental property which may be an area you are not living in.

Do your homework in terms of the rental you will receive – never leave that to the silver tongue of the estate agent!

The rule of thumb is that the annual rental should be at least 10% of your purchase price – so if you purchase a property for R500 000, then the annual rental should be R50 000, or about R4 100 a month.

Also factor in other costs such as levies and rates and taxes.

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