Buying a home is a big decision. Whether it’s your first home or your tenth, you’ll want to take into account all the factors that will impact your current and long-term financial goals. Should you rent or buy? Here are some of the key considerations to help you decide.
Renting offers flexibility
There are a number of perks to renting, including the fact that you can move at any time. If your lease is up and your landlord says you can stay for another year, great!
Maybe after six months in your new neighbourhood, it turns out that the apartment isn’t all it’s cracked up to be—or maybe you don’t feel like living in Sydney anymore.
If something comes along that works better for you or calls more strongly than the harbour city (like Brisbane), there’s no reason why you should be stuck here longer than necessary. The same goes for job changes or career shifts; if an opportunity presents itself elsewhere, but there’s no way out of where you live right now due to a long-term lease agreement you will feel stuck!
Having this flexibility doesn’t just mean being able to change location when needed; renting also means being able to change apartments within an existing location as well! If you like to travel at the drop of a hat, apartment living will suit you. You don’t have to pay an Airtasker to water your plants or collect your mail. Once you know the neighbourhood you get an idea of the good streets and not-so-good ones. If you have a six-month lease you can always move into another block in the area if didn’t like the first one.
Buying offers equity
Buying a home is a long-term investment. If you bought a house for $400,000 in 2009 and sold it today for $650,000, you’ve done well. You’ve made $250,000 in profits over the last fourteen years (not including maintenance and other costs). This works to be an annualized return of 4.46% p.a. You can borrow against this equity and buy an investment property. You can also use it to buy a portfolio of shares or managed funds. The interest paid on this “release of equity” is tax-deductible.
However, do not fall into the trap of buying a crappy house or some dud shares just for the tax deduction!.
Rent vs Buy
A concept called “rentvesting” has cropped up recently. When you want to live in a certain neighbourhood but can’t afford the 2 million price tag, you rent there and invest the remainder of your money in shares or a cheaper property. This way all your money is not going down the drain or dead money as most people call it. And you have a foot in the door in the property market in case you have FOMO !.
For example, in a nice suburb called Annandale in the Inner West area of Sydney, it costs $950 per week to rent a 2 bedroom house and it costs $2,000,000 to buy that house outright. This would require a minimum deposit of 10% or $200,000 which say you don’t have. A mortgage of $1,800,000 would be around $9,500 in monthly payments. Your monthly rent works out to be $4,117. Say you invest $2,000 per month in an index ETF, over 15 years you would be sitting on an amount of $600,000. And the icing on the cake would be that you didn’t have to compromise on your lifestyle and were not burdened with a high mortgage.
Food for thought. This strategy is not for everyone though.
If you are wondering what ETF’s are, read this article.
If you’re looking at buying your first home but don’t know where to start I’ve created this guide so that no matter what stage of life you’re at or what kind of property you want to buy – whether it’s an apartment or house – my tips will help ensure that you make the right decision for yourself.
Location is key
You need to think about the location of the property. If you want to be in an urban area, then renting is probably your best bet. However, if you’re looking for a rural area with lots of space, it may make sense to buy a house instead of renting one.
Ability to make home improvements
When you buy a home, you can make improvements to the property. You might choose to remodel the kitchen or add on a sunroom, for example. No doubt that Bunnings is one of the most popular hangouts for Aussies on a Saturday morning. With YouTube as your guide, most newbies are able to undertake simple renovations by themselves.
If you’re renting, however, it’s not as easy to change up how your house looks. The landlord has the final say on whether or not they will allow any changes (and they may charge extra money if they do). If you want to improve the property yourself–say by adding in insulation–you’ll have less freedom than if you were buying the home and making these kinds of changes yourself.
It’s also possible that your landlord will require that any improvements be made with materials provided by them; this is sometimes done so that landlords can keep track of what has been done in case something breaks down later on down the road
Cost of homeownership
To determine whether it’s better to rent or buy, you need to consider how much each option will cost.
This includes housing expenses like mortgage payments, strata fees( if it’s an apartment) bank fees, council rates, and home and contents insurance. It also covers maintenance costs (such as replacing the garage door), improvements (like landscaping and lawn mowing), and other expenses that aren’t included in your monthly payment but still need to be paid when owning a home.
Then there are rental costs—rental bond(up to 4 weeks of rent) and contents insurance need to be considered.
And if you have roommates who share these costs with you, this might make renting cheaper overall than buying.
The decision to rent or buy is a personal choice based on your financial situation and lifestyle preferences.
Before deciding whether to rent or buy, ask yourself the following questions:
- What are your financial goals?
- Are you saving for a down payment on a home, saving for retirement, or trying to pay off debt?
- The answer to this question can help inform the type of loan you choose. For example, if you want to invest in real estate so that it will appreciate and increase in value over time (in other words, make money), then maybe buying is best for you.
- On the other hand, if your goal is simply to be able to afford something without putting your life savings at risk and without having any financial stressors weighing on you every month (i.e., “peace of mind”), then renting might be more appealing than buying.
- What is your current financial situation?
- How much do you earn per year?
- Do you have any debts (like credit card bills)? If so how much are they costing each month in interest payments alone?
- These are all factors that go into determining whether getting housing loans would pose too much risk for someone like yourself who doesn’t have as much collateral available right now but still wants some form of shelter.”
Conclusion
I hope I’ve helped you make an informed decision about whether or not to buy a home. If you do decide to purchase, remember that it’s never too late to start saving for a down payment!