Is a home an asset?

Every so often, the media revisits the debate regarding whether a home is an asset. Some say that given the maintenance costs, taxes, interest payments on a bond, and the constrained rate of property price growth, a home is not a great investment.

"However, this can only be true from a limited buy-and-sell perspective - the perspective of those who focus solely on potential capital growth, when property ownership offers so much more," notes Dr Koos du Toit, CEO of P3 Investment Group.

When comparing homeownership to renting, it is clear that a home is indeed an asset. When renting, a home is simply an ever-growing expense, as rentals increase each year. While tenants may not pay rates and taxes and levies separately, these costs are often factored into rentals. And, when the lease expires, the tenant walks away with nothing, except perhaps the portion of the deposit not withheld for damages to the property.

Dr du Toit explains that if you buy a home, the bond repayments remain static, barring interest rate fluctuations, which means that in 10 years' time, your bond repayments will still be roughly the same as they are today, but rentals will be at least double of what they are today, thanks to inflation. "Given that accommodation costs are the biggest expense for most salary-earning individuals, the savings achieved in monthly accommodation costs are significant. These cost savings become even more pronounced after 20 years, when the bond is paid off and the property owner has a fully-paid up property in which to live during retirement. The homeowner could also choose to rent out the property to create an additional income during retirement while renting a smaller property, or to sell the property in order to buy a smaller retirement home with a substantial deposit or even cash."

In addition to the massive monthly saving in accommodation costs, homeowners will also build up equity (the difference between the value of the property and the outstanding bond amount) over time. "This is because property is an asset that increases in value over the long term, as property prices increase - at an average of 10.5% over the last 20 years," says Dr du Toit. "But this growth in the capital value of the property is not the only way in which homeowners can build equity. If homeowners pay a little extra - even just R200 - each month into the bond, the equity can grow substantially as the outstanding bond amount is reduced rapidly. Homeowners can also upgrade their properties over time, for example, by extending the buildings, upgrading the kitchen or bathrooms, or installing water- and energy-saving devices, all of which will require little investment but add significantly to the value of the property, and therefore the equity available in future."

Homeowners also do not have to sell the property to access this equity - it can also be accessed by, for example, taking a second bond, providing cash to start a business or fund your children's university education. So, if nothing else, owning a home is a way of saving up for a better financial future. You can also use your own property to generate an income, for example, by renting out a portion or running a business from home.

Your home could also become the foundation for acquiring a second property, which could be rented out, providing capital growth which will build up further equity, but also an ongoing, inflation-linked monthly income. As such, your home can become a solid foundation from which to build up a small but profitable portfolio of buy-to-let properties.

"To participate in the property debate regarding whether a home is an asset, a new perspective is required - a perspective that considers capital growth as only one part of the property equation, and therefore also considers the fact that a home is an asset that provides accommodation not only now, but also provides cost-free accommodation in retirement or the capital to buy a retirement home, while also building equity that can be used to start a business, fund children's education or start a portfolio of buy-to-let properties," notes Dr du Toit. "Focussing only on the potential capital growth that a home could generate obscures all these reasons why owning a property is a solid foundation for creating a financially-independent future."

"Property is such a unique investment that those who choose to learn how to use property to create wealth, employ good risk management practices and manage their property assets properly, will increase their wealth so rapidly, it will make any other investment seem mediocre. Doing so does not require qualifications or experience, or much time, training or effort. All that is required is a new, clear and rational perspective about the power of property to create a financially-independent future," concludes Dr du Toit. "Over the last 10 years, the P3 Investment Group has helped thousands of ordinary salary-earning South Africans to use their properties to secure a comfortable retirement by implementing the simple and practical steps the world's wealthiest have used for generations to create wealth.

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