With interest rates at an all-time low but property prices at an all-time high, knowing whether to rent or buy is an age-old question that unfortunately doesn’t have a simple answer. While homeownership is still a huge part of the Aussie dream, the truth is, it all comes down to dollars and sense. That is, what works best for you as an individual – both from a personal and financial point of view. Let’s look at how the different options stack up, so you can decide what’s right for you…
RENTING: The pros
Cashflow is king
If you’re a lover of freedom and like to jump on opportunities or travel adventures as they arise, renting often provides more flexibility. By not having your earnings allocated to mortgage payments or a deposit-saving regime, your savings are freed up to spend as you please.
Fulfilling for the free-spirited
Once your lease expires, you’re free to move into a home that ticks more of your boxes, to a different neighbourhood or a different state altogether. If you love changing scenery (which in our current lockdown-infused life is very appealing), the freedom to simply pack up and move can be a major drawcard.
Paying less for the postcode
If inner-city living is a must for your lifestyle or career, renting is going to be a much more affordable option to buying. You’ll also save costs on commuting to the city and may even be able to do away with owning a car.
Diversifying your dollars
For first home buyers in particular, sinking all your hard-earned cash into a single asset can be scary stuff. Renting can open you up to a broad range of investments options – from shares to cryptocurrency – which come with some sensible benefits. Keeping your investments diverse spreads risk and sets you on the path to a solid long-term portfolio. CommBank explains here how to get started with investing $10k or less.
Banishing the bills
Utilities and rent payments aside, renting gets a big tick for predictability. Extra costs like maintenance, repairs, rates, and insurance are all someone else’s problem. Your rent can only increase at the end of your lease period, so you’ll have no worries there either.
RENTING: The cons
As a renter, it’s likely you’ve been told “you’re paying someone else’s mortgage” at some point. This becomes a major negative for long-term renters. While in most cases, mortgage payments outpace rental payments initially, there becomes a point where the balance shifts and mortgages become more affordable than rent, and then eventually (for most), mortgage payments disappear altogether. This can impact on your retirement plans significantly – with rents trending upwards and your earning potential dropping back, you could be forking out a substantial sum just to have a roof over your head.
Homely but not your home
While you may have turned it into a much-loved space to call your own, it can be a real shock to be given notice at the end of your tenancy. While your landlord might not have immediate plans to sell or develop when you move in, plans can change and you’re essentially at the mercy of your landlord. Your landlord also rules the roost when it comes to any changes you can make to the property – even something as simple as putting up pictures on the wall can be a no-no.
Spending over saving
Once your rental payment has gone out, you’ll never see that money again. Contrastingly, having a mortgage acts as forced savings plan – chipping away at an asset that is likely to appreciate over time. Having a mortgage is also a huge incentive to prioritise making additional payments over frivolous spending.
Pets could be a problem
Not all rentals will allow pets and some properties simply don’t have the space to cater for your furry friend. There are Pet Friendly Rental Properties but the available housing options are far more limited.
Explore more renting related content here.
BUYING: The pros
The master of your destiny
The biggest advantage of owning your own home is the security, stability, and freedom it provides. You’re no longer reliant on a landlord to determine how long you stay there – which can be a key consideration in providing a stable family life – and you can renovate, remodel, and decorate to your hearts content. You can also have one pet or two, it’s entirely up to you!
The appeal of an appreciating asset
If you’re looking at home ownership from an investment perspective, it’s a solid long-term strategy. Based on data from the past 25 years, the upwards trajectory is set to continue, and you’re likely to see robust gains over your years of home ownership.
Grabbing a gain
Buying a property at the right price still provides savvy investors with the opportunity to make a quick buck and skip a rung on the property ladder. Perhaps you don’t start out with your dream home, but simply see the potential to renovate and upgrade down the track. The key here is to do your homework and understand the relevant capital gains tax obligations.
The equity equation
As you pay off more of your mortgage and your home’s value increases, your equity grows. As it grows, you can use this as security to buy other assets, make investments or even make improvements to your home. Leveraging equity in your home (if done correctly) can help grow your wealth beyond that of your initial property investment.
BUYING: The cons
The great money vortex
From rates to tree maintenance, insurance and body corporate fees, there are plenty of additional costs that creep up on homeowners. While some of them are predictable, sudden repairs like a leaky roof or burst pipe can create huge financial pressure. Cash aside, you’ll also find yourself investing a lot more time in a property you own. While much of this can be rewarding, mowing the lawns, weeding the garden and upkeep of exterior painting can quickly become a chore.
Calculating the amount of interest and fees you’ll pay over the life of a home loan can be frightening and eye watering. It pays to be prepared and ensure you can meet payments if rates climb – particularly if you have a variable or short-term fixed rate.
There are no guarantees
While investing in property is generally a winner, there’s no promise that your home will gain value. Factors outside of your control like a major employer moving out of the area, increasing crime rates, a natural disaster, or a new motorway route nearby your property can all bring prices down in a previously prospering neighbourhood.
Having most of your money tied up in property typically comes with compromises. Things like travel, study and dining out take a back seat, as do other investments that could actually provide greater return. The opportunity cost (particularly in the short-term) of buying a house is a big one to consider.
Explore more home buying related content here.
So, what’s the best option for you?
The decision to rent or buy isn’t black or white. It’s important to carefully consider which option is going to suit your personal financial circumstances, lifestyle goals and appetite for risk – both today and into the future. Getting a feel for both rental and purchase prices is a great place to start, and something First National Real Estate can help you with. Combine this with a chat to your bank and it’s likely the path will become a lot clearer. Remember, there’s no wrong choice, and it’s entirely possible to generate wealth and financial freedom whichever path you choose.
Looking to rent or buy, or simply after some advice? Call your local First National Real Estate office today.