- Many of us struggle with the question of whether to buy or rent.
- The answer to this question has changed over time and may change throughout your life.
- We’ve prepared a pros and cons list to help you choose whether you should buy or rent.
Should you buy or rent?
It’s an important question we ask ourselves. In some cultures, buying a house has become a mark of adulthood and adds pressure to the decision. This is particularly true for countries like Australia, where home ownership has been around 70% since 1961.
Don’t throw your money away on rent.
You may have heard similar sayings before, which set up a choice between renting and buying your home. Renting, however, isn’t necessarily dead money, with research showing that over 10 years, renters can be financially better off. On the other hand, buying a home can also mean signing up to a long-term mortgage that many people are choosing to avoid so that they have the freedom to be young and mortgage-free.
It’s essential to make a choice based on your context and your situation.
It will take some of us more time than others to build a mortgage deposit, particularly if you do it without the bank of mum and dad. Pressure to buy will affect your decision making, but it shouldn’t drive it. Buying a house is a huge commitment, and it needs to be the right choice for you at the right time. How you answer the question of whether to rent or buy will change over time.
Here’s a breakdown to help you answer the question: Should you buy or rent?
- Benefits of buying your home:
- Stability: You gain the security of owning your home without relying on a landlord.
- Ownership of the space: It’s legally your space that you have the right to decorate and renovate to your specific taste. No need to ask the landlord before picking up a paint can and painting that feature wall.
- Wealth building: Buying a home is an investment and an asset you can actually see and use. Plus, you can also use the equity in your home to increase your options, such as buying more property.
- But buying a home can have downsides:
- Locked in: You’re locked into a mortgage and owning your home until you can sell it at the right time. Unfortunately, a profit from selling your home is not guaranteed, and the interest rates you pay may vary over time.
- Commitment: It takes time to build a mortgage deposit, and you otherwise might be able to use this cash in different ways to build wealth, such as investing.
- Costs: You can expect added fees when buying a house, including local and state taxes like stamp duty. You’ll also need to pay ongoing costs such as maintenance, council tax and utility bills.
So, would you be better off renting, when considering whether to buy or rent?
- The benefits of renting the space you live in include:
- Freedom: You can use your savings that would go towards your mortgage to pursue other goals instead like studying or travelling. Your money is more liquid, and you’re not tied down to one location via a mortgage.
- Saving money: You can save money when you rent, provided your rent remains cheaper than mortgage deposits, and you make an effort not to spend every income source you make. Done right, this means you have money saved to buy when the time is right.
- Someone else pays ongoing costs: Your landlord pays the property’s ongoing costs such as council tax and body corporate fees if you live in an apartment block.
- But renting comes with the following downsides:
- Lack of security: Your lease is for a fixed period of time, and your landlord could choose to end the lease. If they want the space back, including to sell the property, it will be time for you to call the movers and find somewhere new to live.
- Renting is a fixed cost: If you buy a house and pay the mortgage consistently, you will eventually fully own your house. Rent money pays off your landlord’s mortgage, not yours, and unless you buy, you’ll always need to pay rent.
- Lifestyle inflation: While renters can be financially better off, this only benefits you if you save money. Watch out for lifestyle inflation, whereby you spend more money because you have it available.
Ultimately, the decision of whether you should buy or rent depends on two things: timing and resources.
We all start from different financial positions. The choice of whether to buy or rent will change over time, and it’s essential to make the right choice for you right now, peer pressure aside.