Rent or buy, settled on net wealth

Ask ten South Africans whether to rent or buy and you'll get ten opinions and almost no arithmetic. The comparison that settles it is net wealth after a set number of years, and it needs both paths run properly.

So this runs two futures month by month. On the buying path you build equity, pay a bond, rates, levies and maintenance, and one day sell and pay selling costs. On the renting path you pay escalating rent and invest everything buying would have cost you: the deposit, the upfront transfer and bond costs, and every month the bond plus rates ran more than the rent. At your chosen horizon it compares what each path left you holding.

Two assumptions drive the answer harder than anything else, and they're yours to set: how fast the property appreciates, and what the renter earns on invested money. Pencil in 10% house growth and 4% investment returns and you haven't run a fair race, you've written the conclusion first.

To fill it in you'll want:

• the price, deposit, bond rate and term, plus monthly rates, levies and a maintenance allowance
• an appreciation rate and the selling costs you'd pay one day
• the monthly rent, its annual escalation, and the return you'd earn investing the difference
• the horizon in years

The price-to-rent gauge at the top gives a fast read: price divided by a year's rent. On the bands the Global Property Guide reports for South Africa, under 16 leans towards buying, 16 to 21 is roughly even, and over 21 leans towards renting. Below that, the verdict card names the winner at your horizon and marks the break-even year, the point where buying overtakes renting. The wealth chart traces both lines, and the outflow chart shows what each costs month to month.

Short horizons usually favour renting. Long ones usually favour buying. Where your own crossover falls depends on numbers only you can supply.

Money Cat is an information tool, not financial advice. Confirm any figure that matters with your bank, lender or a registered professional.