04 December 2009 INVESTING: BUY VS RENT Smart money rents By Ian Fife

Your home is often not your best investment. You can make more money renting your house and investing your capital elsewhere. It costs more to own a home than to rent the same place, and the interest charged on your bond payment is not tax deductible. Add other factors and you have a compelling argument to separate your home from your property investment. Say you have enough cash - of R250 000 - and borrowing capacity - of R750 000 - to buy a R1m house including transaction costs. That would get you a typical suburban house (three/four bedrooms and a swimming pool) in Johannesburg's northern suburb of Blairgowrie. Anton de Leeuw Your bond repayment would be about R7 500/month. You would also have to pay rates, insurance and repairs of about R1 000. If you bought that property as an investment, you could rake in about R6 500/month rent, giving you a net income of R5 500/month and an annual yield of 6,6%. But you could buy four flats in Yeoville for R1m that would give you a net income of R8 000/month and a yield of 10%. You would also get a positive cash flow of about R500/month. Click here for a full breakdown of potential earnings over a six-year period from 2010 to 2015. So why not rent in Blairgowrie and invest in Yeoville? SA's growing buy-to-let investor market means you have a wider choice of long-term rental homes. The table (above) shows your monthly cost of accommodation would fall from R8 500 to about R6 000/ month, before paying tax on your net rent. You would pay for electricity and water as a tenant or owner. Your saving can be as much as R322 000 in the first six years (go to free.financialmail.co.za for the full breakdown of your capital gain). If you prefer, you can rent in a higher priced suburb, say Craighall Park or Bryanston in Johannesburg, at the same cost as owning in Blairgowrie. The key advantage of separating your home and investment is that you can live in your chosen area at the least possible cost and invest in an area that will give the best return but where you wouldn't want to live. You can also move without incurring the substantial transaction costs of buying and selling: 7% sales commission, transfer duty on the purchase price, and legal and mortgage registration costs. These can be 15% of your purchase price. It makes most sense for youngish singles, couples and families because that's when you do most of your moving. But it makes financial sense for anyone.