To rent or buy your home?

We've decided to sell our house and rent an apartment instead. Now why would we do that?

Basically, because we wanted to change our lifestyle to one that allows more freedom and less responsibilies.

But in the process, (and this only came after we sold) I calculated whether we had made a gain or loss while holding the house. We bought it for R1,8m in 2004 and sold it in 2018 for R2,8m. Profit or loss? At an average of 6% inflation, the value of money halves every 72/6 years (the Rule of 72), that is every 12 years. That means that by 2016, we should have been selling at R3,6m. The actual calculation results in a figure of R4m by 2018, just to break even after inflation! So, in todays terms, we've lost R1,2m - not the best investment I've ever made.

Add to that the cost of finance - about R2m over the past 14 years, which at todays values would amount to about R5m. That means that the house has cost us a net R6,2m over 14 years.

Now add the cost of maintenance, garden, gardener, insurance, rates, levies and pool chemicals. Roughly R10 000 per month at today's rates. That's another R1,7m.

R7,9m to buy something that's only worth R2,8m. That's 30 000 a month, just to achieve nothing.  (Don't forget that the repayment of the capital amount is not included in these costs)

We could have rented an apartment valued at R3,5m for about R30 000 per month and stuck the capital repayments into other, far better, investments which today would be worth about R2,8m with none of the headaches that come with ownership.

A final word. In order not to pay Capital Gains Tax on the, so called, gain of R1m, we held the house in my wife's name with the risk of losing it if things went pear shaped. An investment, on the other hand, would have been held in a company owned by a trust, with zero risk.

The numbers are very rough and ready, because I've had to jiggle with inflation, but whichever way you look at it, it's an interesting call.

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