Am I better off renting or buying?

Posted on Friday, October 9, 2015 - 15:00

It’s better to rent! It’s better to buy! There’s a lot of contradictory information out there about the state of housing. There’s no clear-cut answer either way. However, renting or buying could suit your goals, financial situation and your lifestyle preferences. So here are the pros and cons of renting your home versus buying a home.

THE PROS OF RENTING

If you are renting, you know that it gives you much more flexibility. If you aren’t happy with where you’re living, you can negotiate your way out of a lease and move elsewhere. You can also rent into an area that you normally couldn’t afford to buy in. Renting also means you won’t have to pay home and contents insurance (although you can buy low-fee renters’ insurance), council rates or any other taxation that applies to home ownership. Another pro of renting is that you can use your surplus cash to invest in shares or managed funds, which can give a higher rate of return than property in some cases.

THE CONS OF RENTING

The obvious downside to renting is the timeworn adage – rent money is dead money. Your rent money is making someone else richer and building his or her equity in your rented property. That means at the end of your lease, you have nothing to show for it. Your rent is subject to the official Reserve Bank interest rate – if the rates go up, so does your rent. Also, you can’t treat your rental property as your home – you have to ask permission to modify the house and deal with real estate agents if things go wrong.

THE PROS OF BUYING

To echo the old bank advertisement – “Equity, mate!” Owning your own home means you are gaining equity (or gradual ownership) of a real asset that tends to appreciate. Buying also has non-financial benefits, too. You won’t have to get permission to renovate, extend or upgrade, nor will you be subject to invasive real estate agent inspections every so often. The big plus? You feel more at home. You own everything. Since there’s no bond to speak of – if you break something, it’s already yours! So you won’t upset anyone if you do (maybe your spouse...)

THE CONS OF BUYING

If rent money is dead money, then non-deductible interest on your home loan is also dead money. If you choose to move in a short period, you may not make any significant gains in value – you may have sunk more money into the house than you are getting back. The RBA in a 2014 report said that owning might only just beat renting over a span of 30 years. If the housing market crashes, this could wipe out the value of your home virtually overnight. Plus, you’ll have to pay your own council rates; stamp duty and insurance to make sure you’re covered. This is on top of the huge deposit you must save in order to avoid paying Private Mortgage Insurance.

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