A PROPERTY EXPERT’S VIEW ON BUYING VS RENTING
One of the most frequent questions I receive is: “Is it better to buy a home to live in or invest in a property and rent?” The answer to this depends on your financial goals, lifestyle preferences, and long-term vision. While the debate around buying versus renting continues, I believe the ideal solution could involve doing both—but with a strategic twist.
The best approach, in my view, is to purchase an investment property through a company with the shares held in a Holdings Trust and rent it from that entity. This allows you to combine the benefits of renting and owning while creating long-term wealth. Additionally, having multiple rental units on the property — such as a house with cottages or apartments—can provide you with rental income even while you live in the main house. Let’s explore how this works and why it may be a winning strategy.
Watch our YouTube video, Is Your Home an Investment?
The Case for Renting from Your Investment Entity
Owning a property through a company with shares held in a Holdings Trust opens up numerous benefits. Renting the property from this entity while living in it, particularly if it has multiple units, offers unique advantages:
- Increased Net Rental Yield
When you manage the property yourself, you save on rental commissions and other management fees. This improves the net rental yield and enhances your overall return on investment. Additionally, having tenants in the additional units on your property creates a steady stream of income to offset your living expenses. - Reduced Vacancy and Default Risks
Living in the main house of your investment property removes the risk of vacancies and defaults for at least one unit—the one you occupy. Meanwhile, the tenants in the other units provide regular rental income. This setup allows you to plan your finances effectively while benefiting from immediate cash flow. - Opportunities for Value-Adding Renovations
As the owner-occupier of the main unit, you can renovate the property to enhance its overall appeal and value. These upgrades benefit not only your living experience but also the property’s market value. The improvements can lead to increased rental income for the other units, ensuring long-term profitability.
By adopting this approach, you can live in a home you enjoy while turning the additional units into income-generating assets. It’s a practical way to achieve both lifestyle and financial goals.
Read our article, Why the Returns on Property Investment is Higher than you Think.
When Renting Is Better Than Buying
Not all properties are suitable for investment, and in some cases, renting the home you live in may be the better option. Here’s why renting could make sense:
1. Cost Efficiency
If you want to live in a location where property prices are exceptionally high—like an exclusive area near top schools or business districts—it may not make financial sense to buy. Renting in such areas can be far more affordable.
2. Capital Allocation
Renting frees up capital that you can use to invest in high-yield properties elsewhere. Instead of tying up your funds in a home that doesn’t generate income, you can focus on building a portfolio of investment properties with strong rental returns.
3. Reduced Responsibility
As a tenant, you don’t have to worry about maintenance, rates, or taxes. These costs are borne by the landlord, giving you greater financial predictability.
4. Flexibility
Renting allows you to move easily if your needs change—whether it’s a job relocation or a desire to upsize or downsize.
Avoid Overextending Yourself
A common mistake people make is justifying expensive home purchases
with the belief that “my home is an investment.” While it’s true
that property can appreciate over time, the home you live in is
often more of a liability than an asset, as it doesn’t generate
income.
Always ensure that the rent or shortfall on the property you live in
is well within your means. Avoid stretching your budget for the sake
of living in a prestigious area or owning a home that’s too large
for your current needs.
Practical Example: How It Works in Real Life
Let’s look at a South African example to illustrate the concept of owning a property through a company with shares held in a Holdings Trust. Imagine you purchase a property for R3 million with three units on the premises—one main house and two cottages.
- The Purchase: You buy the property through your investment company, with shares held in your Holdings Trust.
- The Setup: You live in the main house and rent out the two cottages for R8,000 each per month, generating R16,000 in rental income.
- Monthly Costs: Your bond repayment on a 30-year loan at 11.25% interest is approximately R29,000 per month. Rates, maintenance, and other expenses add another R5,000.
- Your Contribution: After accounting for the rental income, you only need to pay rent of R18,000 to cover the shortfall to live in the main house.
Now compare this to purchasing a single-unit home for R3 million in an upmarket area that generates no rental income. Your monthly bond repayment and costs remain at R34,000, but you’re solely responsible for covering the entire amount. This approach ties up your capital without providing additional income.
By choosing the multi-let property, you gain a place to live while reducing your financial burden and building a sustainable income stream. Over time, the property appreciates, the rental income increases, and you can reinvest in more properties.
Key Takeaways
- The Best of Both Worlds: Owning a property through a company with shares held in a Holdings Trust and renting it from the entity allows you to benefit from homeownership while keeping your financial options open.
- Think Strategically: If you can purchase a property with multiple units, you can live in one and generate income from the others, making it a smart investment.
- Run the Numbers: Always ensure the financials make sense. Focus on properties that deliver strong rental yields and avoid overextending yourself.
- Flexibility Matters: Renting in premium locations or during transitional phases can provide flexibility and financial freedom.
Final Thoughts
The debate between buying and renting is not about one being better than the other—it’s about understanding what works best for your situation. By adopting a strategy that includes purchasing properties through a company with shares held in a Holdings Trust and renting strategically, you can maximise your financial returns while enjoying a comfortable lifestyle.
Remember, the ultimate goal is to grow your wealth sustainably. Whether you choose to buy, rent, or do both, make informed decisions that align with your long-term vision. As property investors, the balance between emotional decisions and financial logic is the key to achieving prosperity and financial freedom.
Watch our YouTube video, Why your Primary Residence Should Never Be Owned in your Own Name.
Read the entire article in the December/January 2025 Edition of Real Estate Investor Magazine.