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Speaker 1: Personal Finance with Warren Ingram.

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Speaker 2: The personal Finance feature is brought to you by Sunlum

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Speaker 2: Corporate taking employee benefits personally because when you care, everyone

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Speaker 2: benefits some lump corporate. Warren Ingram, as you know, is

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Speaker 2: a certified financial planner at Galileo Capital. How's it warrant tonight?

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Speaker 2: Why you believe? When is it better to buy a

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Speaker 2: home than to rent? And Warren, I mean, this is

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Speaker 2: such an interesting conversation. There's so many different variations. You

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Speaker 2: can have it again and again. And one of the

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Speaker 2: things that always fascinates me is I think so many

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Speaker 2: of us want a piece of land or as something

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Speaker 2: that is ours that you know can't be taken away.

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Speaker 2: And I mean, it can always be taken away, but

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Speaker 2: is ours. There's a something, a sort of sense of

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Speaker 2: that you suggest that actually that could cost you money.

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Speaker 3: It can cost you money, and and and I think

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Speaker 3: it is a nuanced conversation, and I think it's one

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Speaker 3: we've had before, and I think we're going to have

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Speaker 3: it again many times in the months and years ahead,

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Speaker 3: because it's it's also a changing conversation, Stephen, where you know,

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Speaker 3: we get impacted by, for example, interest rates and and

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Speaker 3: you know, interest rates are affected by inflation. So if

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Speaker 3: we're expecting inflation to go up, then that's going to

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Speaker 3: push interest rates up, and that that makes home ownership

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Speaker 3: more expensive. And equally, if inflation starts coming down and

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Speaker 3: interest rates come down, then then you know, home ownership

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Speaker 3: becomes a little bit more viable again. And and and

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Speaker 3: I think it's it's a condition that that does go

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Speaker 3: in cycles. But I but I also believe there is

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Speaker 3: a time and I think now is one of those

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Speaker 3: times when some of the banks are are looking to

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Speaker 3: build their their client base, you know, in mortgages, and

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Speaker 3: and so they start offering rather attractive rates and and

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Speaker 3: so I think it's a conversation that's always going to

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Speaker 3: be relevant in in our world of personal finance. But

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Speaker 3: but I do think it's it's never going to be

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Speaker 3: a sort of a one shoe fits all to use

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Speaker 3: that that wonderful cliche. I think there are times when

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Speaker 3: home ownership is a very good idea and other times

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Speaker 3: when when when renting is the very best idea you

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Speaker 3: can make, and we need to be careful that we

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Speaker 3: just kind of make a rule of thumb that you

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Speaker 3: should always own I think always owning becomes a very

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Speaker 3: bad decision for a lot of people.

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Speaker 2: And okay, just to put this all in context as well,

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Speaker 2: if you look at if you're going to buy a house,

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Speaker 2: that is probably almost certainly your biggest kind of thing

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Speaker 2: that you buy in terms of expense. If you don't

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Speaker 2: buy a house, the amount of money you spend on

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Speaker 2: accommodation over your let's call it fifty years from sort

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Speaker 2: of starting to work to ending work is probably also

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Speaker 2: going to be your single biggest cost over that time. Right,

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Speaker 2: So that's why this is such an important issue. Either way,

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Speaker 2: it's going to be your most expensive cost.

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Speaker 3: You're right, And I think it's also sometimes you know,

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Speaker 3: as you were as you were saying that, I was thinking,

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Speaker 3: it's it's true. I mean, I think, you know, we

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Speaker 3: we have to live somewhere. So whether we're we're paying

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Speaker 3: a mortgage or or we're paying rent, it's it's probably

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Speaker 3: going to be a very big cost. But equally, you know,

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Speaker 3: the type of property you choose to stay in has

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Speaker 3: a very big impact on all of this, because you know,

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Speaker 3: if you if you live in a place that's that's

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Speaker 3: you know, expensive in South Africa, and there are pockets

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Speaker 3: where throughout the country where where there are areas that

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Speaker 3: have become very expensive over time, and and you choose

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Speaker 3: to stay in, you know, in an expensive house and

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Speaker 3: an expensive area, then then you might find the cost

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Speaker 3: of ownership is just simply unaffordable and and the cost

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Speaker 3: of renting might might be better for you might be

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Speaker 3: in your favor. Whereas you know, if you decide, well,

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Speaker 3: I'm actually happy to to be in a little bit

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Speaker 3: of a less fashionable area and happy to to kind

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Speaker 3: of live with some inconvenience, then you might find the

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Speaker 3: cost of home ownership is a lot less and and

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Speaker 3: so suddenly the you know, the renting is and so clever,

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Speaker 3: and and home ownership becomes something you should really consider.

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Speaker 2: Okay, we need to start then with the true cost

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Speaker 2: of owning a home. Now, I'm old enough to know

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Speaker 2: that when you look at these, you know, the sort

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Speaker 2: of property pawn of the websites that carry all of

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Speaker 2: the properties, you've got to really look at the price,

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Speaker 2: and then you've got to look at everything else.

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Speaker 3: You're absolutely right, and and you know, let's just start

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Speaker 3: with transaction costs, because that's you know, those property websites

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Speaker 3: that you're talking about, they'll often show you at the

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Speaker 3: you know, towards the bottom the cost of just of

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Speaker 3: the transaction costs of getting in. And I think you

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Speaker 3: know when you when you start to add the property taxes,

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Speaker 3: so the transfer duties, and then the lawyer's fees for

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Speaker 3: the transfer, but also the lawyer's fees to the bank's

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Speaker 3: lawyers because they're going to register a mortgage on your

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Speaker 3: on your property. You're probably looking at around ten or

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Speaker 3: twelve percent before you you know, wipe your eyes out

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Speaker 3: and that it's just going in. You know, then on

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Speaker 3: the way out, you're you're going to pay those agents

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Speaker 3: and and so the transaction costs are are just astronomical

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Speaker 3: as far as I'm concerned. And and then then we

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Speaker 3: get to the costs of ownership, and that's the day

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Speaker 3: to day cost. So yes, you've got a mortgage, you've

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Speaker 3: got a bond repayment, but but that that's not where

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Speaker 3: the story ends. You also have to pay the municipality,

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Speaker 3: so you have to pay them for for rates. And

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Speaker 3: if you live in a in a a in a state,

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Speaker 3: or in an apartment block, then you've got levies as well.

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Speaker 3: And and then you know insurance and and don't forget

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Speaker 3: that even if you stay in an apartment, you are

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Speaker 3: still responsible for maintaining the property on the inside, So

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Speaker 3: you're going to have to repaint every now and then,

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Speaker 3: do the cupboards and you know, the flooring. So you

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Speaker 3: can probably add about one or two percent of the

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Speaker 3: value of your property to your maintenance costs as well.

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Speaker 3: So home ownership is simply not just the bond. It's

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Speaker 3: it's a lot more than that.

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Speaker 1: Okay.

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Speaker 2: Is there a way to work out what you're likely

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Speaker 2: to spend on I mean, obviously depends what you buy.

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Speaker 2: If you buy a fixer upper, in other words, something

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Speaker 2: that needs a lot of work, well you're going to

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Speaker 2: have to do a lot of work on it. But

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Speaker 2: I mean there must be a sort of way to

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Speaker 2: work it out.

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Speaker 3: Yeah, So I'm not I'm not good with my maths

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Speaker 3: on the fly. So I did a little prep and

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Speaker 3: I just said, if you want to give yourself a range,

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Speaker 3: it's probably at the very lower end one percent a

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Speaker 3: year and at the higher end two percent a year.

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Speaker 3: And the reason for that is if you stay in

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Speaker 3: a relatively modern apartment block, that the maintenance will be

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Speaker 3: a bit less than if you stay in an older home.

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Speaker 3: But one to two percent of the value of the

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Speaker 3: home is a good is a good rule of thumb,

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Speaker 3: and so on a two million round home, you're probably

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Speaker 3: talking around twenty to forty thousand round a year on

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Speaker 3: top of so, so you know, just just to add

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Speaker 3: to all the other costs that that that you are

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Speaker 3: going to pay.

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Speaker 2: Yeah, okay, when does buying a home make sense? Because

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Speaker 2: this is where you life choices really start to matter,

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Speaker 2: and my house the phrase life choices are slightly negative

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Speaker 2: connotation because it's usually where is this person there, they're

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Speaker 2: sitting considering their life choices, in other words, things we've

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Speaker 2: done wrong. Okay, So when does buying a home make

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Speaker 2: When is buying a home a good life choice?

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Speaker 3: Warren Ingram I think it starts with the timeframe. So

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Speaker 3: if you're if you're choosing a house in an area,

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Speaker 3: and you say, I'm happy to lock myself into this

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Speaker 3: house in this area for at least the next eight

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Speaker 3: and ideally ten years, then that that's a big starting point.

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Speaker 3: That that's probably a very big signal for you to

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Speaker 3: take buying very seriously. And for a lot of people

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Speaker 3: that will coincide with when their kids go to school.

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Speaker 3: You know, they'll look at school and say, well, you know,

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Speaker 3: hopefully that's a twelve year you know, stretch and and

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Speaker 3: so I want to be in an area where I

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Speaker 3: can I can give my kids stability and and know

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Speaker 3: where the school, and so that will be the starting point. Importantly,

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Speaker 3: it's not when you start work and you start your

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Speaker 3: property life on your own. In other words, that first

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Speaker 3: at all studio, or that first oft the place you

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Speaker 3: share with a friend, that's not the place you buy

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Speaker 3: because most likely you're going to stay in there for

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Speaker 3: a year or two and maybe three until your income rises,

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Speaker 3: and then you're going to move. And if you're in

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Speaker 3: that moving cycle of every three years moving into a bigger,

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Speaker 3: better place, then you don't want to buy because of

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Speaker 3: all the transaction costs that we've spoken about. So I

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Speaker 3: think rule one is it's the place I'm happy to

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Speaker 3: stand for eight or ten years or longer. And if

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Speaker 3: you listen to someone like Warn Buffett, you'll say that's

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Speaker 3: the home you stand for the next fifty years, and

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Speaker 3: then it's a great decision to buy. However, that's not

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Speaker 3: your only factor. You also need to know that you've

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Speaker 3: got at least ten percent of the value of that

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Speaker 3: house as a deposit because you want to give the

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Speaker 3: banks some comforts that when you go in and you're

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Speaker 3: going to borrow money, that you're putting some money into

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Speaker 3: the deal as well. That means they give you a

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Speaker 3: better rate of interest. It also means that you can

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Speaker 3: get that bond paid down a bit quicker than you

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Speaker 3: would normally, and you've got the discipline of saving. So

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Speaker 3: I think that probably the deposit is number two, and

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Speaker 3: then number three would be what can you pay on

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Speaker 3: a monthly repayment on your bond versus the rent that

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Speaker 3: you were paying. If you can pay a big enough

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Speaker 3: deposit on the property, or the property is cheap enough

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Speaker 3: that it would match that the rent you were paying,

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Speaker 3: then you're probably you're probably on your way to making

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Speaker 3: a good buying decision. Then very last, and I know

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Speaker 3: you're going to laugh at me, Stephen, but you have

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Speaker 3: to have an emergency fund. You know, you need you

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Speaker 3: probably need actually six months or in emergency fund when

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Speaker 3: you're in the early stages of owning a home, because

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Speaker 3: there are always costs that are going to catch you out.

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Speaker 1: Yeah, I know.

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Speaker 2: Look, I mean home own is this is a continuing thing,

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Speaker 2: isn't it. There's so much to talk about. All right,

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Speaker 2: we're talking to Warren Ingram, he of course is at

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Speaker 2: Galileo Capital. We're talking about renting versus buying on The

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Speaker 2: Money Show and Personal Finance.

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Speaker 1: The Money Show, Personal Finance with Warren Ingram well talking

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Speaker 1: of course to Warren Ingram tonight about renting versus owning

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Speaker 1: and that conversation that we're having.

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Speaker 2: We've heard when buying does make sense, Warren, there are

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Speaker 2: moments when renting actually makes sense.

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Speaker 3: Absolutely, And I think you know, in the in the

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Speaker 3: job environment that we're in now, where you're finding more

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Speaker 3: and more people working in the gig economy where they

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Speaker 3: don't they don't you know, get employed in a stable

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Speaker 3: position with with stable income. You might find that their

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Speaker 3: income is extremely volatile and and maybe that there are

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Speaker 3: you know, some of these digital nomads where they're roaming

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Speaker 3: around the country or you know, even a city or

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Speaker 3: even the world. It's it makes no sense to me

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Speaker 3: that that that, you know, when you've got very unpredictable

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Speaker 3: income and your your you know, you require flexibility in

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Speaker 3: your career in terms of where you are, that that

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Speaker 3: you buy a home, I think renting then makes a

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Speaker 3: lot of sense and and especially if it's you know,

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Speaker 3: early in your adult life and you're not quite sure

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Speaker 3: who you are and where you want to be and

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Speaker 3: what you're going to do with your life, then then

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Speaker 3: then you know, putting down your roots too early into

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Speaker 3: physical property could be a real burden. Uh. And and equally,

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Speaker 3: if you're in a position where you're you're not financially

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Speaker 3: very strong and you haven't got this, you know, budgeting

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Speaker 3: down properly, and and and you know you're finding adulting difficult,

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Speaker 3: then I would say the same thing. I think you've

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Speaker 3: just got to be very careful that you that that

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Speaker 3: you don't over commit to a big debt, because it's

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Speaker 3: you know, it's it's pointless saying to a bank, you

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Speaker 3: know who's given you a mortgage. You know, look, I'm

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Speaker 3: made a few mistakes. Can you just give me a

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Speaker 3: bit of time off and I'll pay you back. You know.

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Speaker 3: The deal here is they've lent you a lot of

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Speaker 3: money to so that you can buy a property, not

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Speaker 3: so that they could end up owning a property, And

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Speaker 3: so that could become a catastrophic decision. Equally, at the

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Speaker 3: other end of life, when when when people decide towards

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Speaker 3: the end of their career that they've worked in the

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Speaker 3: big city and and now they're keen to go and

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Speaker 3: move to a smaller town and have a more peaceful life.

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Speaker 3: The mistake a lot of people make is that they

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Speaker 3: fall in love with a particular town because they went

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Speaker 3: there on a holiday, and so they're going buy, you know,

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Speaker 3: a holiday house and find that you know, it's super

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Speaker 3: in the three months of summer, but it's rather awful

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Speaker 3: in the four months of winter. And so I would

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Speaker 3: say renting in a place that you are new to

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Speaker 3: the area, and especially if it's a new city or

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Speaker 3: a new province, it makes a lot more sense to

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Speaker 3: rent until you've got a very good idea of the

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Speaker 3: layer of the land.

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Speaker 2: What about opportunity, he says controversially. So I think anyone

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Speaker 2: who brought into Cape Town's housing market ten years ago

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Speaker 2: is smiling now. But you could say that somebody could

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Speaker 2: easier brought into Jerberg's housing market ten years ago and

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Speaker 2: expected to be smiling now.

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Speaker 3: Yes, I'm one of those, and I can promise you

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Speaker 3: I wasn't smiling when I sawd that that house that

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Speaker 3: I'd owned for nearly a decade. And I think you've

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Speaker 3: got to be very careful that your your home. You

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Speaker 3: should view your home as as an asset only for

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Speaker 3: the purposes of your own little balance sheet, and not

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Speaker 3: as an investment asset or a retirement asset. And and

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Speaker 3: so you should be buying because it suits your your

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Speaker 3: life and your stage of life and all the other

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Speaker 3: decisions that we've discussed around schooling, et cetera. But you

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Speaker 3: should not view it as an opportunity to make money,

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Speaker 3: you know, to use that Cape example. So, so someone

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Speaker 3: buying into the Cape now believing that the property market

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Speaker 3: in the Cape will continue for the next decade in

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Speaker 3: exactly the way it's done for the last decade. That

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Speaker 3: that's called driving by looking in the rear view mirror.

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Speaker 3: You're driving forward at one hundred and twenty k' is

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Speaker 3: an hour and the only thing you focused on is

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Speaker 3: the rear view mirror. In other words, what happened in history.

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Speaker 3: And as anyone who drives a car knows, it's very

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Speaker 3: dangerous to drive and only look in the rear view mirror.

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Speaker 3: So I think it's a fallacy to expect that whatever

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Speaker 3: happened in a market, whether it's a stock market or

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Speaker 3: a property market, that that will just repeat itself.

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Speaker 1: Forever.

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Speaker 3: It just doesn't do that.

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Speaker 2: There's also an opportunity cost, right, if you're putting money

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Speaker 2: into a house, you could have put that money somewhere

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Speaker 2: else and you've lost out on that chance.

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Speaker 3: Yeah, and I think you know understanding that, you know,

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Speaker 3: if you over commit to a property purchase, it's the

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Speaker 3: same as over committing to a single share in a

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Speaker 3: business that operates in one sector, maybe in one city,

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Speaker 3: in one area. And so you know it. You know,

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Speaker 3: if we were talking about a share put foot, you

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Speaker 3: would never tell someone to put all their money onto

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Speaker 3: one small share in one little sector of one and

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Speaker 3: maybe only in one city. It just wouldn't make sense.

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Speaker 3: But we view property somehow as lower risk, and so

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Speaker 3: I think, you know, diversifying your risk away from having

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Speaker 3: everything in one you know, one egg and kind of

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Speaker 3: buying lots of eggs and lots of baskets makes a

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Speaker 3: lot more sense to me.

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Speaker 2: So, I mean, this is the thing is that you've

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Speaker 2: got to really plan it out over a very long

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Speaker 2: period of time, and you've also got to take into

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Speaker 2: lots of variables. But your biggest one is you probably

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Speaker 2: don't know what's going to change in your career or

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Speaker 2: whether your child wins a scholarship to school at the

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Speaker 2: other on the other side of the city.

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Speaker 3: Yeah, so I think there are probably not many stages

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Speaker 3: where you're going to make this property buying decision with confidence,

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Speaker 3: you know. And but I do think you know, once

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Speaker 3: you've got your child into a particular school, and you

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Speaker 3: know that you know you're going to be in an

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Speaker 3: area for that twelve year period, I think it's one

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Speaker 3: of those times where you can I mean, nothing's guaranteed,

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Speaker 3: but that that's probably one and equally once once your

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Speaker 3: career is stable, and maybe you're in the last ten

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Speaker 3: or fifteen years of your career or the first ten

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Speaker 3: or fifteen years of your retirement, those are probably two

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Speaker 3: more periods where you have a fairly good idea that

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Speaker 3: you've got as much stability and predictability as you're going

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Speaker 3: to get.

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Speaker 2: We have a question from Tim. Tim says Warren. My

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Speaker 2: wife and I expecting our first child in Foremance. Congratulations, Tim.

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Speaker 2: We own a combined eighty thousand round a month. We've

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Speaker 2: never really had a proper financial plan. We don't know

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Speaker 2: where to start. What should we be prioritizing right now?

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Speaker 2: I'll start the nappy Fund Tim Warren, you'll have a

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Speaker 2: better response than I will.

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Speaker 3: I think that's that's very sage advice. I think the

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Speaker 3: first thing will be that you have to make sure

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Speaker 3: that your will is up to date now and on

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Speaker 3: the birth of your child, so that you've taken care

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Speaker 3: of the real disaster scenario, which is, you know, if

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Speaker 3: you and your wife, you know, happen to die in

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Speaker 3: an accident or something that you're the guardians of your

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Speaker 3: child will be sorted out. And and so that's number

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Speaker 3: one for me. It's it's a thing that a lot

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Speaker 3: of parents forget early on. And then too, you know,

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Speaker 3: I think thank Steven's got a good point. You need

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Speaker 3: to build up, you know, quite a lot of extra

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Speaker 3: money for for expenses that are just going to surprise you.

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Speaker 3: I don't think it's possible to budget with perfection when

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Speaker 3: when you're having your first child, you just simply are

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Speaker 3: not prepared for all the costs that are going to

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Speaker 3: hit you. So so I think making sure that you've

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Speaker 3: got your expenses under control is important. But you know,

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Speaker 3: building up the cash for for those unforeseen expenses will

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Speaker 3: help you a lot. And and then just making sure

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Speaker 3: that you're not operating under a heavy debt burden, you know,

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Speaker 3: so so make sure that if you've got capacity now

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Speaker 3: and and you've got things like credit cards and personal loans,

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Speaker 3: et cetera, pay those downs as much as you possibly can.

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Speaker 3: It's it's very tough in those first few months to

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Speaker 3: to kind of be you know, sensible and rational when

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Speaker 3: you're when you're kind of sleep deprived all the time.

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Speaker 3: And and so I think making sure that you can

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Speaker 3: you can take care of those basics will be important now.

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Speaker 3: And then my my comments to new parents always is,

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Speaker 3: you know, if you can start that tax re savings

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Speaker 3: account for for your your child, you know, you know,

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Speaker 3: maybe not the day they're born, but but let's say

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Speaker 3: in the first couple of weeks or months, and you know,

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Speaker 3: for for the friends and parents and grandparents everybody to

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Speaker 3: to contribute to that would be wonderful for the first

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Speaker 3: few years of that child's life when when they won't

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Speaker 3: know what presents really are. I think that that would

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Speaker 3: be very good. And then making sure that you've done

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Speaker 3: the tough stuff, so you've done the things like life

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Speaker 3: cover and and made sure that your your child will

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Speaker 3: be looked after in the event that you you know

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Speaker 3: you're not around one day.

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Speaker 2: Warren, thanks so much. I really appreciate such an interesting debate.

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Speaker 2: Warren Ingram, of course, is the co founder at Galileo Capitalist,

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Speaker 2: Certified Financial Planner. I'll be interested in your views about

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Speaker 2: renting and buying. I mean, I think so many people

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Speaker 2: have so many different views about it. So Warren Ingram,

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Speaker 2: thanks very much. Indeed,