For many generations the great Australian dream has been to buy a home. But have times changed?
Previous generations seemed to view renting as something only those who couldn't afford to purchase their own home did. For this reason, our parents and grandparents – along with the media – often sent clear messages that 'rent money is dead money'.
However, an increasing number of Australians voluntarily choose the rental option. There are some who prefer the ability to move to other areas when the lease expires. Others may need to move for work reasons at some point and so don't want to waste money on stamp duty or agent's fees for such a short term.
And then there are those who rent simply because they're not in a financial situation to buy a home of their own just yet.
The pros and cons of renting and buying
Deciding which one suits you best comes down to your own situation and personal preference. Here is a comprehensive list of pros and cons for each situation:
Pros of renting:
- Rent is often cheaper than mortgage payments on the same property.
- You don't need to save a substantial deposit to rent
- Paying rent usually leaves you with more disposable income each week
- You don't have a large mortgage debt hanging over your head
- The landlord pays the rates and body corporate fees on the property
- The landlord is responsible for repairs and maintenance on the home
- You can move where you want and as frequently as you want (depending on your income and the rental agreement of course)
- You can live in areas which would be too expensive for you to buy in but still provide the amenities you like
- You're free to invest your leftover income into whatever you like - not just property
Cons of renting:
- Your rent money is paying off your landlord's mortgage
- Your rent money is also buying your landlord an asset
- Landlords tend to increase the rent at least annually
- You may be limited with regard to personalising your home (i.e. painting walls, hanging pictures, replacing carpets, changing the gardens or landscaping)
- Leases aren't permanent. Your landlord could decide to evict you if he wants to sell the property.
- The money you pay in rent each week is gone and you have no assets which come of it in the end
- Rent payments won't ever stop as they would if you repaid a mortgage
- Rent costs in Australia are gradually rising
- Savings are not forced as they are through mortgage repayments
Pros of buying:
- Every payment you make on your mortgage is paying off your own asset
- Your mortgage payments are like enforced savings, building up your equity with each payment you make
- You can build equity in your home by paying extra off your mortgage
- You can negotiate your interest rates and loan terms to keep your payments down as much as possible
- You have a roof over your family's head that a landlord can't evict you from
- You can personalise your own home as much as you want
- You can renovate your home to increase its value
- Property values tend to increase in Australia
- You can sell your home when you're ready to move
- You can choose to rent out your property if you want to live somewhere else, so your tenant is paying off your mortgage
- You can leverage your equity (or borrow against it) to build wealth
- You can potentially avoid erratic rent rises by securing the right home loan
- The length of time it takes you to pay off your mortgage is up to you
- When you pay off your mortgage, you don't have to make any further payments on your asset
Cons of buying:
- You'll need to save a large deposit to cover the down-payment and fees associated with buying a property
- You have a large debt hanging over your head and are likely to be in debt for several decades to come
- Interest rates fluctuate, meaning your payments could rise or fall depending on the market
- You may not be able to borrow enough money to buy a home in the area you prefer, leaving you in a less desirable location
- You could miss investing in other assets
- Property values can fall, decreasing the value of your investment
- Stamp duty and real estate agent's fees can eat a huge chunk out of any equity you thought you'd built up if you decide to sell and buy something else
Is your choice inline with your financial goals?
There is no right or wrong answer when it comes to the question of whether renting or buying is better. The final decision is one that needs to be made by you. The real key is to determine what your financial goals are - do you want to build wealth with an asset?
The only decision you need to make is to work out what is best for you and your personal financial situation - can you afford to be paying your home loan on a tight budget?
A younger couple or a single person may find that renting gives them the ability to live in a more desirable area that would possibly be out of their price range if they were buying. However, a family with children may want the stability that buying a home can offer. This is especially true if the kids are settled at a particular school, as renting in that area could pose a risk if the landlord decided not to renew the lease.
While it's clear there are plenty of pros and cons for both renting and buying, There will always be people who will be better off renting, just as there will be people who do better by buying.
The real key is to determine what your financial goals are. If you're keen to own an asset of your own or find ways to build up your personal wealth, it may pay to work out whether you can afford to save a deposit and take the plunge into buying. Rework your budget and see where you might be able to cut back on spending a bit to help speed up your savings goals. Once you're in a home of your own, keep reworking the budget to ensure that you can meet your mortgage payments comfortably each month.
Are you ready to buy?
One of the first steps in deciding whether to buy or continue renting is to calculate how much you could potentially borrow? Use our calculator below.