The age-old debate of renting versus buying has been going on for generations and will probably continue to rage for many more generations to come. You may be currently living with your parents and wondering whether you should find a place to buy, or just rent for a bit. You may be a long-time renter and wondering whether you should take the plunge and buy a place to live and to call your own. Or perhaps you are currently living in your own home but are wondering whether you should find a place to rent and turn your current property into an investment. This article will delve into some of the pros and cons.
One of the stigmas around renting is the common saying that ‘rent money is dead money’. It is true that you get no long-term benefit from your rent payments, but by the same token, you get nothing from paying interest for loan repayments. Renting, in fact, can be much cheaper than buying, especially in sought-after, high-profile areas. The less that you pay means there is more money going into your pocket to spend and invest as you like. This can be great if you want to reduce your financial burden. The increased cash flow can also mean that you can diversify your risk when it comes to investments; it gives you the ability to put money in other areas such as stocks or starting a side-business.
When you rent, maintenance and repairs to the property are not your responsibility. Of course keeping the property neat, clean and tidy is up to you. But if anything breaks or malfunctions – such as the dishwasher , water heater, air con etc, it is up to the landlord to repair it. It is also the landlord’s responsibility to pay the council rates, water service charges and body corporate fees. On the whole, you are unlikely to have any unexpected property-related expenses and therefore, you’ll be accurately budget your monthly cash-flow. On top of this, you won’t have the stress associated with organising repairs or maintenance, so all-in-all, life is typically much easier.
Renting gives you the flexibility to live in areas that you would not be able to afford if you were to purchase a house. You can live in locations that suit your lifestyle but don’t suit your investment strategy, or doesn’t have the capital growth to warrant purchasing a property in. The greatest benefit is its flexibility – it is much easier to pick up and move when you are renting. So whether you want to move into a bigger house for your growing family, uproot to wherever your career takes you or jet off on your next international adventure – renting makes it infinitely easier. What it boils down to is lifestyle: renters will almost always be able to live where their life leads whereas buyers will have to make sacrifices based on their budget.
The major downside is your lack of inherent control in your living situation. Landlords may choose to increase the rental rates which could hurt your pocket and your monthly budgeting. After every contract expires, landlords can decide to sell the property or decide not to extend your lease. All renters live with the constant possibility of being forced out of your home before you are ready. And with the sometimes strict stipulations of what you can and can’t do in a rental, the property could end up not feeling like your home at all.
When you own a property, the ultimate benefit is being able to do anything and everything you ever envisioned. You are in full control. You have the freedom to change the colour, hang up paintings or build a deck. You have the ability to make major changes to the property without having restrictions imposed by a landlord. Your home is actually a home.
Purchasing a property will hopefully secure a stable asset for your future. With the backing of historic trends behind you, where we have seen property increase fairly consistently over the generations, it is a good bet that your property will continue to increase in value over time. You can use this increase and growth in the value of your property as leverage when looking to borrow money to buy another property. For many, this is a low-risk and reliable way to secure your future comfort in your elder years.
Owning your own property gives you the added security for your living situation. You won’t have the fear that someone will force you to move before you are ready. You will always have a roof under your head as long as you keep up your loan repayments. You are also able to enjoy your property, get to know your neighbours, and hopefully, build a life you always imagined in a place you can call your own.
Just like rent money interest repayments for your bank loan doesn’t benefit you or your future financial state. And in most cases over the lifetime of your loan your interest repayment will be significant. For example if you were to borrow $800,000 on a 30 year loan at 4% you will end up paying an extra $574,956 in interest repayments. So essentially, in this case, you are paying an extra 72% of your initial purchase price to own your property.
When it comes to buying homes, there can be a lot of hidden costs associated. Costs such as body corporate, water service charges, home insurance and council rates – to name a few. On top of this, when you purchase a house, you will have to pay stamp duty. When you choose to sell it, you may have to pay capital gains tax. All of these factors added up over the lifetime of you owning the property can ultimately make buying a nonviable option.
The first thing you should take into consideration is your lifestyle. Are you willing to give up your extravagant lifestyle filled with smashed avocados, chai lattes and your annual international adventure? If so, renting – with all its flexibility and freedom – is best for you.
Or you are sick of the constant moving, the uncertainty, and the inability to build a lasting home? Are financially stable and ready to make a compromise to your lifestyle to invest in your future? If so, buying – with its stability and security – is your next best step.