The Rolling Alpha – finance expert Jayson Coomer – has worked with a developer to design a highly detailed buy versus rent calculator, catering specifically for the South African market.
The core of the calculator is to find out the monthly rental rate at which it makes more sense to purchase a house instead of renting.
The rent price is indicated on the sliders throughout the process, so you can see what impact every change – in rates, deposit, house price etc – makes at every step.
“There are so many variables that affect your decision to buy a house. There’s the price of the house, the mortgage, interest rates, insurances, renovations, transfer fees, capital appreciation rates – the list goes on and on,” Coomer said.
“Because there are so many unknowns, it’s almost impossible to try and work out whether or not you shouldn’t just rent instead.”
The calculator also takes into account other, future factors – like how long you plan on living in the house, and even goes as far as to calculate what type of return you could get if you were to invest money elsewhere and opt for renting.
- Find the Buy vs Rent calculator here.
Using the calculator’s default as an example, the process finds that the rent for a R3.5 million home, for 8 years of occupation (23% deposit, 20 year home loan, and other rates at CPI) comes to around R32,760 per month.
If you can rent a similar home for less than that amount, then renting is a better option, the calculator recommends.
“The basic idea is this: if you’re going to buy the house, then you should end up better off than if you rented. Especially as there’s so much more admin involved in home ownership,” Coomer said.
“If we work out all the home loan repayments and extra living costs and the lost income that you could have earned on those costs (and the initial deposit), and then deduct the gain that you make on the property itself, then we can work out the maximum rent that you should be willing to pay before it would make more sense to just buy the house.”
“If you can pay a lot less rent than that, then rent,” he said.
You can find the rent or buy calculator on the Rolling Alpha website.
[Note: Due to high traffic volumes, the website hosting the calculator has experienced significant down-time. The latest update is that it will be back online by the 29th of September]