Buy or Rent?
With housing affordability and inflated property values in the headlines, is it better to buy a home or rent?
In today’s low interest rate environment, it may seem like buying property is a better option than renting. However, if you don’t have the cash flow, a mortgage can become a huge burden. When making the decision to buy or rent, it’s important to watch the market so you have a solid understanding of what will work better for you.
Renting – the pros
In some areas, renting works out cheaper on a monthly basis and this is especially true if you’re sharing with friends. It often works out for the best if you want to live in a desirable location, like inner-city or CBD suburbs, where house prices can be astronomical.
You can also avoid the fees associated with purchasing a home which are considerable. You can invest this money elsewhere, with the possibility of earning a decent return. Renting also gives you a certain level of flexibility and makes moving much easier.
Finally, when renting, you don’t have the maintenance costs as your landlord takes care of repair bills, rates and building insurance payments.
While flexibility is fantastic, it also comes with uncertainty. If you’re looking to put down roots, renting can be difficult as you never know whether your landlord will put the rent up or extend your lease. While renting may be the cheaper option now, if property values rise, so does rent. Your landlord will eventually pay off their mortgage, but you’ll continue to be paying rent.
Personalising your home is much more difficult and you must be prepared to give your landlord or property manager access to your home at any time – with sufficient notice.
Buying – the pros
The main advantage of purchasing your own home is the investment angle. As property prices rise, so too does your investment value and you’ll be better off when you sell. Although mortgage payments may work out to be more than rent, at the end of the day, you have equity in a valuable asset.
Currently, interest rates are low, so your repayments will be lower. Buying takes advantage of this, renting does not. And there is the stability that comes with owning your own home. You choose when to sell and move, rather than being dictated to by a landlord.
Property prices can rise, but they can also fall. And if you sell in a downward market, your personal wealth could take a big hit. Your repayments will also fluctuate, depending on interest rates and the type of loan you have.
There are a number of fees associated with buying and selling property – stamp duty, real estate fees, legal fees and more which means a bigger dent in your savings.
So, what should you do?
There’s a saying: ‘rent money is dead money’. However, this isn’t always the case, and for some, it’s actually the smartest move.
Deciding to rent or buy is always an individual choice depending on your circumstances. It’s important to sit down and work out the total costs for both options and choose what’s best for you.
Do you currently rent or own your home? Share your comments below.