Renting versus buying: which property choice is best? The great Australian dream has always been to buy your own home, whereas renting is seen as an option for those who are not financially stable. However, when considering renting versus buying, you might be surprised at which choice is better for you and your circumstances.
Renting versus Buying: Renting
Renting is a very flexible choice. Renting allows you to live in an area without fully committing to it. You may rent a house in a particular area to discover if you would like to permanently live there or you may use renting as a way to live in a certain style of house. Do you prefer brick to a Queenslander style home? Are you suited to an apartment life style? Do you have a job in a certain area for a certain period of time? These are all decisions you could make while renting without making an expensive decision to live there. Then, if you like the area, you can simply keep extending and resigning your lease. Or, if you decide to travel, or you dislike the area you live in or hate the house, you can simply wait for the lease to end and move away trouble free.
Another advantage of renting is the lack of investment risk. For example, any changes to the value of the property doesn’t affect the tenant as they are not wanting to sell. While you may experience a rise and fall of rent prices as a tenant, you have no risk when it comes to house value and mortgage costs. Most people who buy a house take out a loan to do so, which then results in paying interest, rates, maintenance and repairs. A tenant does not have to bear these expenses, at least directly; though the rent is likely to be set at a level that will cover them.
One typical scenario in the renting versus buying conundrum is that in some cases, the amount you pay in mortgage repayments is the same as the amount you pay in rent each week. When renting, you do not get to renovate or change much about the house and if something breaks, you often have to ask the landlord to fix it, which may take some time.
However, in most cases, rental prices are cheaper than mortgage repayments, meaning you may choose to save for things that are more important to you. With the money you save, you may be able to afford a new car, travel more or retire with more money in the bank. Or, you may rent for longer and save to be able to afford a down payment on a house; resulting in a cheaper loan. The downside of renting when considering renting versus buying is that you may not want to be renting a house once you’ve passed retirement age, as rents may continue to rise while your retirement income may not. You may also be required to move house at a time in your life where this becomes harder.
Renting versus Buying: Buying
The main thing that interests buyers the most is the investment value of the home. Most buyers assume that the property will rise in value over the medium- to long-term and that if ever they sell, they’ll make a profit. They may use this profit to upgrade to a better home and hope for the same profitable returns.
Buying your own home also gets you into the market, rather than watching house prices continually climb. In most major Australian cities, demand outstrips supply, pushing the price up. You may have a good idea of what sort of home you’d like to buy and begin saving, only to find that once you’re ready to buy you can no longer afford that type of house. This is not always the case though – house prices do fall at times, especially outside capital cities where population growth is not as high.
A home owner can also renovate, demolish and/or extend their property however they wish. You can change appliances, wall colour and furniture however you please. You do not have to worry about the landlord’s permission and can do whatever you wish to your own home. The only caveat is that if you’ve made your home too unique, it may decrease the resale value.
When considering renting versus buying, having your own home past retirement age is beneficial. It’s likely you’ll have paid off your mortgage by this time and you’ll have housing stability. Or you may decide to downsize and use the profit from your home to fund your retirement.
Buying means that it can be difficult to escape if you suddenly wish to move, because you must first sell your house. If you decide to buy again without selling your first home, you may find yourself paying two mortgages. You may decide to sell your home during a downturn in the market, meaning that it’s harder to sell. There are also selling costs – real estate agent’s fees and another round of stamp duty if you’re buying another property.
You may be subject to rising interest rates throughout the life of your mortgage. At the moment, Australia enjoys very low interest rates, but this may not always be the case. Considering the average mortgage is taken out for between twenty to thirty years, there’s a reasonable risk interest rates will vary during this time. If they rise sharply, you may find you can no longer afford the mortgage repayments. Always enter a mortgage agreement carefully and thoughtfully.
At Mitchells Solicitors, we can help you with all aspects of buying and selling a home. Before you sign any contract, come and see us first! We’ll make sure you don’t make any expensive mistakes. We offer a FREE, ten-minute phone consultation – contact us today.