Should you rent or buy a house? What you should need to consider when deciding to rent or buy a property? Deciding on whether to rent or buy a property can be confusing.
Here are the risks and benefits of owning and renting a property:
Owning
It gives you stability. Buying a property gives you stability since there’s no risk that you’ll be uprooted by a landlord. Living in your own home also allows you the freedom to renovate and decorate your home as you wish.
Rise in house prices over time. Owning an asset that may increase in value over time is appealing. While the value of property has consistently risen over the long term, it can also have periods of weak growth or even fall in value. Therefore you need to remember that ownership is a long-term investment.
Renting may be more expensive. If you choose to rent instead of own, it’s important to understand how much extra cost there might be compared to owning. For example, you could end up paying higher rentals over the years because rental expenses do increase over time. If you do decide to purchase later down the track, you may find yourself having to pay off a larger loan amount due to higher property value so the sooner you buy than rent, the greater the affordability in the long run.
Renting
Frees up your savings and allows you to diversify your investments. By choosing the renting life over ownership, you’re not spending your savings on initial deposit, monthly mortgage, and all the costs associated with buying a property. You’re freeing up money to save and invest. Depending on where you invest the money, you may get a greater return on investment than if you’d bought a property. If you’ve got a large amount of cash sitting around waiting for you to decide what to do with it, then investing it into shares could give you better returns than putting it straight into a single asset.
Flexibility. Renting gives you much more freedom when it comes to moving around. As a tenant, you can freely relocate from home to home and area to area as you please. The significant costs associated with buying and selling mean that you have less flexibility when deciding to relocate.
Ownership costs are more than just a deposit or mortgage. There are also the ongoing running costs of owning a property, including council rates, repairs, depreciation, body corporate fees, water, and insurance costs. It’s much more than just paying for your mortgage.
There are opportunity costs. The opportunity cost is the cost of having your money tied up in a certain asset when it could have been used for savings and investments. If you choose a life of renting, you’ll have the money you would have saved for a deposit and mortgage payments to spend on more important assets. This might be for travel, study, entertainment, or your own business. It could be used for investments that potentially could yield greater or quicker returns than a temporary residential property.
Forced savings. A mortgage is like forced savings. You have to pay your monthly mortgage – putting money towards an asset that is likely to increase over time. With renting, it can be enticing to spend spare money rather than save or invest it.
Our Advice
There are many different factors to consider in buying or renting a property, including your financial resources, lifestyle, family needs, investment goals, and appetite for risk. Doing research and talking to an expert is a good idea to see how much you could afford to pay or borrow and how much repayments would be. You can also use home loan programs to see which type of loan account might be right for you.
