Buying vs Renting in Australia

girl deciding to buy or rent a house

You’ll save more money by owning a house than renting one” is a popular adage thrown around by the people in the real estate industry. However, renting becomes appealing again when the house prices fall because the major advantage of owning (capital growth) is gone. House affordability has always been a primary concern for first home buyers, and working out whether to buy or rent is more disputed now than ever before. In the end, like any financial decision, both renting and owning has their benefits and drawbacks. So here we'll discuss some of the advantages and disadvantages of both the options you should consider while making an informed decision.

The Benefits of Renting

Utilize Your Savings

One of the benefits of renting a house vs. buying is that your savings are free to be utilized elsewhere. When you rent, you won't spend all your savings on a deposit and other costs connected with buying a home. Depending on where you invest, you can get a more significant return on investment than possible in buying a house. So you need to evaluate and layout your investment goals and strategy.

Flexibility

Renting offers you more flexibility than owning a house. Renters have the freedom to relocate to any place once their lease ends. Buying and selling a home requires substantial funds, which leave you with less flexibility when you want to move. This makes renting an attractive option to young Australians and families that need to relocate frequently due to work or schools.

Diversification of Investments

When you buy a home, especially as a first home buyer, you essentially put most (if not all) of your eggs in one basket. Most of your wealth would be tied up in a single investment that can be affected by numerous factors beyond your control. Renting allows you to lower that risk by investing your savings across a broad range of ventures. So you can reap the pe of investing your money while spreading out any potential risk.

No Maintenance/Repair Costs

Usually, as the tenant, you are not responsible for the repair and maintenance of the property unless you caused the damage deliberately. Your landlord takes care of that along with the council rates and body corporate fees. However, as a resident of the place, you should maintain cleanliness and order.

The Drawbacks of Renting:

Uncertainty in Rental Costs

There is a chance that rental costs may increase over the years, mainly due to inflation and a surge in property prices.

No Forced Savings

When you have a mortgage, you are forced to put money each month towards an asset that may increase over time. That is not the case with renting. So renters can be tempted to spend the spare cash rather than saving or investing it.

The Benefits of Buying a House:

Security and Freedom

One of the underrated benefits of buying a house is the sense of security and freedom it gives you. You have the security of not getting evicted as long as you don’t default on your mortgage. You have the freedom of renovating the property as you please, which can add value to your home. Also, rent hikes, lease terms, or getting along with your landlord aren’t a concern for you anymore.

Increase in Property Value Over Time

A house is an asset that may increase in value over time. The rise in property market prices often leads to an increase in property values as well. While the property market has seen consistent growth over the long term, there can also be periods of stagnation or even a drop in value. This is why you must always consider homeownership as a long-term investment.

Use Equity in Your Home

Owning a home puts you in a better financial position in the future as you now have an asset at your disposal called home equity. Home equity is the portion of your home that you own. Your equity will grows as you pay down your loan insofar as the value of your house increases. The equity can then be used in various ways, from investments to funding your child’s college education.

The Drawbacks of Buying a House

Interest Repayments

The money you spend on interest repayments and fees throughout the loan term may add up. The interest rates are prone to fluctuation during the life of a loan, especially if you have a variable interest rate or if your fixed-rate term ends. This means your mortgage repayments could go up in the future, depending on your unpaid principal.

Ownerships Costs

The cost of buying and selling a house is not cheap. Selling a property costs around 4% of the sale price of the home, and that’s counting agents fees, advertising, etc. Furthermore, about 6% of the purchase cost is spent on stamp duty, government fees, conveyancing charges, loan setup fees, etc. There are also ongoing running costs of owning a house that includes council rates, repairs, depreciation, body corporate fees, water, and insurance costs. It involves more than just saving for a deposit.

Opportunity Costs

The term opportunity costs refer to the cost of having your money tied up in a property when you could obtain a return by using it somewhere else. A life of renting means you’ll have the money you would have saved for buying a house available to spend elsewhere. That could be investing in a diversified portfolio with the potential for higher or faster returns or investing in your own business.

How to Decide

The decision to buy or rent isn’t just about the money. It’s also about the vision that you have of your life. Various factors weigh in, such as your financial resources, lifestyle, family needs, investment goals, and appetite for risk. Do your research and talk to an expert. Give our mortgage brokers a call today, and they can provide you with valuable insights to help you make an informed decision.

Author:

Kiran Thapa

Seema Lama

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