Housing affordability is an ever present concern for many modern day Australian citizens. This is why the first thing on their to-do list is determine whether to rent or buy.
Of course, for many there is only one decision to make, which is rent, because they don’t have the huge amount of deposit required to enter the property market in many Australian cities.
But there are also many who believe that home-ownership makes the most sense. Rent money is a waste as it’s not an investment. All you’re doing is paying someone else’s mortgage.
To those who are still undecided, which is the best way to go?
Rent or buy?
Both options have their pros and cons. In the end, it is up to you whether to rent or buy, depending on your current personal and financial situation.
Renting gives you flexibility because as a renter, it’s easy to move from one home to another and from one suburb to another when your lease ends.
Signing a lease is a cheaper alternative to purchasing a home. Many young professionals cannot afford to buy in inner cities and near city locations where the lifestyle they prefer and career opportunities are easily accessible.
It’s true that rents are increasing. But it is also a fact that rental payments is usually higher than the monthly mortgage repayments they’d pay for a comparable property.
In addition, there are many costs associated with buying and selling property. There are agent’s fees, advertising fees, stamp duty, government fees, loan establishment fees, etc.
The biggest advantage of renting is that it is not your responsibility to pay for the cost of expensive maintenance, repair, insurance premiums, and more that comes with owning your home. These ongoing expenses are the responsibility of the landlord.
As for the drawbacks of renting, renters don’t have a say with regards to how long they can stay in the rental property; it is the landlord’s decision. This can be extra tough if the renter has become fond of what they consider their home.
The home you’re renting is never your own. You can’t make upgrades to the rental property, or even hang even something as simple as a wall art, without your landlord’s permission. Plus, the landlord or property manager can enter your home, with proper notice and with good reason, for things like regular inspections.
The major factor worth considering is the rising cost of rent. Renting may be the cheaper option now, but rent is constantly increasing in time with the rising value of properties.
You will pay rent as long as you are renting. In contrast, paying mortgage typically ends within 25 to 30 years.
There is a feeling of constancy and stability if you’re living in your own home. You can make whatever upgrades you want; you decide how long you stay there (as long as you’re faithfully paying your mortgage repayments; and you build great equity.
Consider owning while renting
There is a growing trend in the property market, especially among young buyers, called rentvesting. This is a property investment strategy in which you continue to live in a rental property while owning another property that you’re renting out.
The difficulty of getting into the property market experienced by many first-home buyers due to housing affordability has given rise to rentvesting. It provides a solution if you want to live in an area where homes carry a hefty price tag. You rent an ideal home in the area you prefer and purchase a property in a suburb where prices are within your reach. You rent out the property to help you cover your own rental payments and later sell it for capital gain.
The beauty of being a renter investor is that it’s a way for you to own property while renting in an area close to the city where the jobs and all amenities are easily accessible. You can enter the property market sooner through rentvesting. Because you can buy from another state, or in a more affordable suburb in your state, you will need a smaller amount of deposit.
Of course, with all types of investment there is also a risk to rentvesting. Way your options properly, so you can make an informed decision about whether this is the strategy that fits you.
Weighing the rent versus buy decision
Renting and buying a property each have their pros and cons. But the final decision ultimately depends on a number of factors, including your financial circumstances, your long-term goals and the outlook of your local real estate market.
Here are five questions to ask yourself if you’re mulling the buy or rent dilemma:
- What type of home is within your reach and how much savings do you have?\
- How many years do you plan to live in the property?
- Which do you prefer: stability or the flexibility to relocate easily?
- Do you want to shoulder the cost of repair and maintenance?
- What do you want to achieve for your finances, career and personal life?
Make an informed decision by doing research. The internet offers plenty of rent vs buy calculators that you can use to calculate the cost involved in both approaches. You can also get a wealth of knowledge about purchase prices and rental rates in the neighbourhoods you’re considering. Lastly, it doesn’t hurt to seek expert advice from a reliable mortgage broker.
Your decision all boils down to carefully weighing all the benefits and drawbacks of both buying and renting, and factoring in your personal and financial circumstances.