3 common questions millennials ask about buying property
Category General News
About 30 years ago, buying property was a no-brainer. However, millennials have been taught to question everything, including whether real estate is the best investment to make.
According to Regional Director and CEO of RE/MAX Southern Africa, Adrian Goslett, while certain things change over time, others remain the same - the investment value of property being one of these constants. "For those who are able to afford it, buying property will never be a financially irresponsible thing to do. I would caution millennials not to abandon the idea of owning property before they have thoroughly investigated its long-term benefits."
To put some of their concerns of property ownership to rest, Goslett answers some of the most commonly asked questions posed by millennial buyers:
1. Isn't it better to rent?
"To answer this, millennial buyers need to factor in annual rent escalations and calculate whether they will be able to continue to afford the property over time. They also need to consider that rent, like interest paid on a home loan, is purely an expense. If you took out a home loan of R1.6 million and pay around R15 000 per month at a blended interest rate of 10%, you will have paid roughly R1.42 million in interest at the end of ten years," says Goslett.
"By comparison, if you rented a property worth R1.6 million for R8 000 per month, applying 9% annual escalation in rent, you will have paid roughly R1.46 million in rent by the end of ten years. Not only are you spending more in rent than you would have been spending on interest on a home loan, you also have nothing to show for that money. Moreover, in ten years' time, your R8 000 rental will now cost you R17 000 per month, which is R2 000 less than the instalment if you were paying off a home loan."
2. How do I afford it?
"The cost to enter the property market does make owning their own home difficult for younger buyers. However, with enough financial discipline and planning, younger buyers will be able to afford the cost of entry," says Goslett.
"I would recommend that first-time buyers speak to a financial advisor to work out an investment strategy that will help them afford to buy property in the mid- to long term."
Calculate what you can afford here.
3. Will I still be able to travel?
"There are several options, such as short-term letting and Airbnb, available to homeowners who are out of the country for extended periods of time. Homeowners can make use of a reliable property manager to collect payment and be available to address any maintenance issues the temporary tenant might come across while the homeowner is out of the country," says Goslett.
"In terms of being protected against damages, certain homeowner's insurance policies might provide cover if you rent out your home occasionally, while others will require you to take out a separate landlord's insurance policy."
"While buying your first home does come with its own challenges, the long-term benefits more than make up for it. If you have any questions or concerns regarding homeownership, speak to a real estate advisor to help you understand the pros and cons of purchasing property," says Goslett.