Growing up, everyone always told me that one must buy property as soon as you can.
Like many things, I found out the hard way that this isn’t great financial advice. In fact, it’s horrible advice.
But like many things, we get so conditioned into believing something, that it’s difficult to question our own conditioned beliefs and take on a new view.
Well, today I want to break the news to you: buying property is a terrible idea.
For two reasons:
- In almost all cases, it’s cheaper to rent than to buy.
- It might not be the worst investment of all time, but it is definitely not the best.
Let me explain using a real-life example of one of my own properties:
In 2011, I bought a property for R2.1m, spend another R1m on renovations and another R400k over the next 8 years. My total cost: R3.5m.
In 2019, I decided to sell it. The market was bad, and I couldn’t get my price, so I rented it out. Listed it for R30k but eventually settled for a rental of R25k p/m.
Then late 2020, I got an offer for R3.4m. I accepted it. After struggling for 4 months with City of Joburg and Eskom, it was eventually registered in March 2021. Gone. Thank the Pope.
Let’s break down this experience in terms of “it’s cheaper to rent than to buy”:
The new owner of my property could have rented it for R25k p/m, instead, she decided to buy it. Her total cost now?
Let’s work it out:
Complex levies: R1,300
Rates + taxes: R3,079
Garden Service: R1,400
Bond payment on a bond of R3.4m at prime over 20 years: R26,360
The total cost per month is now R33,574 – that’s R8500 more than renting.
But this excludes any maintenance costs or repair bills.
A quick look at my own costs over the last year owning this property was just over R90k.
That’s another R7500 average cost per month. Now, buying is R16k more than renting…
“But wait”, I hear you’re saying “but I’m now paying off my own bond and this will be my own property one day”.
100% correct, which brings me to my second point: “It might not be the worst investment of all time, but it is definitely not the best.”
My total cost on this property was R3.5m, I sold it for R3.4m. A loss of R100k in 9 years.
What would have happened if I invested R3.4m just on a basic JSE Top 40 Index Fund? In 2020, I would have cashed out R6m – a profit of R2.6m. And let’s be honest, the JSE performed very poorly during these 9 years. The same investment in the Nasdaq would have tripled my money.
My point? If you take the extra cash that you pay on your property and rather rent and invest that difference in listed equities, you’ll end up with way more cash in your pocket.
The JSE (and listed equities in general) has outperformed most asset classes consistently over the last 100 years, especially property.
And in closing off, owning property is a huge burden. It’s difficult and costly to buy: bonds, transfer duties, attorneys, time. It’s difficult and costly to maintain: repairs, maintenance, rates, taxes, insurance. It’s difficult to sell: paperwork, agents, costs, incompetent organisations such as City of Jhb and Eskom.
Renting is cheaper, less worries and more cash in the end.
My Naspers shares can’t call me on a Saturday afternoon to fix the geyser and they don’t require an agent and a lengthy sales process, I simply log in online and click on SELL.
Do that with your property today: SELL.
Ps. Will this argument be true on all property deals? No, it won’t. But on most? Most definitely.