To Buy a Home or Rent a Home
An age old question for real estate investors is: Do I buy my own home to live in, or do I rent a home?
There is no right or wrong answer to this question, it is more a matter of where you are in your life and what your financial goals are.
Depending on where you live and the current state of the property market, renting can be a cheaper short term option.
Renting is very suited to the younger generation as they are just starting out in their careers and haven’t had time to save for house deposit.
Ultimately, most people will have rented at some stage in their life and will be owner occupiers in other stages of their lives.
Even long-time owner occupiers of houses and units will find short term house rental beneficial, when they want to move to a different location or upsize/downsize their properties.
Pros and Cons of Renting
- Low commitment: A small rental bond and 3 to 6 month lease signup are the normal requirements for getting into a rental home.
Renting is normally cheaper in capital cities compared to buying.
- You can live near where you work, and if you have to move around for your job, it’s an easier transition.
- If your income goes up, you can upgrade your property without much hassle.
- The landlord is responsible for the maintenance of the property. This is a great advantage for alot of people who do not want to spend their time doing maintenance chores or who are not physically capable.
- Regular inspections mean you have to keep the property to a certain standard of cleanliness and repair which means living to other peoples standards and not your own.
- You do not receive any capital growth as you do not own the property (and therefore not building equity for further investments).
- The landlord can sell the property out from under you, potentially forcing you to move when you don’t want to.
- Rents almost always go up on a regular basis (such as every 6 to 12 months).
Pros and Cons of Owning
- It’s your house so you can do as you want with it (within local council restrictions).
- You should receive capital appreciation over the years which builds equity for further investment.
- If interest rates go down, so do your monthly repayments (assuming you have a mortgage with a variable interest rate).
- Over a longer period of time, your income tends to go up due to inflation, yet your mortgage repayments remain roughly the same. This means it is easier to make further repayments or more money to spend on other things.
- There is a certain level of maintenance involved in living and owning a property. A unit or townhouse will normally be less hassle than a house.
- Every 5 to 10 years may have some larger expenses such as replacing a hot water system, repainting, fixing plumbing, replacing carpet and upgrading fencing.
- Mortgage repayments can easily take 20 to 30% of your gross income. After paying income tax, you might find it difficult to live on your remaining money. This will depend on the ratio of your income to the level of debt you have taken on.
- Most mortgages are 25 to 30 years in length which can be seen as a negative that you are committed to something for that long, but it can also be seen as a positive in the fact that at the end of the term, you will never have to pay for your shelter again.
As you can see there are advantages and disadvantages to renting and buying a house.
Now you can apply these to your own situation and make an informed decision as to whether you should rent or buy.