Investing in property, especially your own home, is an excellent plan for financial stability. Although investing is always viewed as a good move, it is not always an easy one to make. Segregation among the financial classes is very easy to spot, especially in cities like Cape Town and Johannesburg, where the poorer residential areas are easily noticeable for their overcrowded, more dangerous and scenically undesirable characteristics.
Tenants, the bread and butter of landlords, are not all as fortunate to be able to invest in their own property. There are many reasons that can keep people from taking such a financial step; the inability to come up with the capital required, being uneducated in investing, unfortunate personal circumstances of not being approved for a loan, etc.
The Disadvantages of being a Tenant:
- You will always have a rental expense, even during retirement when it starts effecting your pension fund income (if you have one).
- You will never have the possibility of earning an extra income via leasing your property.
- You will not be able to alter/build/decorate a rented home to your desires (as most lease agreements stipulate that no alterations are to be made to the property).
- You will become a burden to your family as soon as you are too old and there are no provisions for retirement expenses, nor shelter.
- You will never have a fixed asset to boost your credibility, should you wish to take out a large loan amount where influence is required/beneficial.
When looking at the list above, it’s easy to want to dismiss remaining a tenant for the rest of your life without an investment plan, but can city dwellers afford the expenses required for an additional investment?
Cities are ideal hubs, drawing in many cultures and businesses along with the population around it. Most offices and occupation opportunities lie within city borders, which means that a lot of people spend a decent portion of their life and income on traveling to and from the city.
The desire to live within the city limits does not always come from ‘want’. Most of the time it comes from ‘need’ – the need to stay within our already tight budget limits. Cutting traveling costs, as well as time spent on traveling, to be close to work and amenities are the main attractions for any wallet when arguing against the expensive cost of living in the city.
So, obviously, city landlords have the advantage of asking a higher rental fee than those in suburban and rural areas. These days even poorer quality bachelor apartments in the city can be more expensive than a 2-bedroom home in the suburbs.
Currently there are only a few decent available residential rental properties within the Cape Town City Bowl District, which is a measly amount when considering how many people are still looking to move to the city. A further point is that the majority of these rental homes are quite expensive in comparison with the average income of most tenanting members of South African society.
Minimum wages, according to www.mywage.co.za, “may differ across geographical areas…[and] also differ in terms of pay periods (daily, monthly or yearly)…job function, years of experience and working hours.”
When taking a Sales Assistant, for example, it is noted that his/her minimum wage currently lies at R17.75 per hour. If we add up the income of a 10-hour working day for a 22-work-day month, we get a minimum salary of R3 905. After subtracting other living expenses such as food, medical fees, childcare (for those with children), credit instalments and the like; what is left to spend on the R7 000, 2-bedroom, apartment in Vredehoek, Cape Town?
The only way to overcome poverty and climb the ladder of financial stability is to start becoming more educated financially and start budgeting accordingly.
Instead of considering how much money you have to spend on accommodation, rather start considering bond repayments above rental fees. Of course buying property comes with an arsenal of financial complications, the up and down of levies and mortgage interest are some good examples, but the long-term benefit of owning your own piece of land or immovable property is what you should try to keep your focus on.
For those with extremely low salaries and an abundance of expenses, consider investing in a multi-family home with possibly other family members. This will result in more heads being able to contribute financially to the credibility of obtaining a home loan and the subsequent dilution of the bond repayments.
Loans in the current economy can be complicated to apply for, obtain and manage. It will always be advisable to speak to a professional financial and legal adviser and to the property specialists in your area. For those tenants in Vanderbijlpark, Gauteng, that are seeking some rental advice, contact Go!Letting Rental Properties.