Buying vs Renting
What's better for you?

According to the Australian Bureau of Statistics home ownership in Australia (either with a mortgage or owning your home outright) dropped to around 66% in 2017/181. With the average residential property price in Australia being $638,9002 it’s not surprising that many people now consider renting to be their best option.

Whether you decide to buy or rent, there are a number of things to consider, and with there being pros and cons to both, it’s a good idea to do your research and find out what makes sense for you and your lifestyle. Let’s look at some of the pros and cons for both options.

Is renting for you?

It’s not surprising that almost one third1 of Australians rent their home, with the steep cost of buying property being one of the main reasons people choose to rent. However, it’s not simply monetary factors that drive the decision to rent – there are several other factors that make renting an attractive option.

On the whole, and depending on where you want to live, renting usually provides more financial freedom than buying a property. Sure, you’ll need to cover the bond, utilities and the ongoing rent, but these will generally be lower than servicing a mortgage and the ongoing maintenance costs associated with owning property.

With the financial freedom often provided by renting comes the added flexibility to move locations when you need or choose to without the hassle of selling a property – you just need to give notice, pack up and clean.

Renting also gives you greater options to use surplus funds for investing. Rather than tying up all your funds into a single investment (such as property), you can diversify how and where you invest those funds. 

One of the downsides to renting is not being able to change the space you live in significantly. In a rental property you’ll need permission to make any material changes such as painting a wall, and in some properties even hanging a picture on the wall.  

It’s also worth considering that despite agreeing on a rental cost at the beginning of a lease, rent can be increased periodically depending on the tenancy agreement you have in place. In turn, budgeting and financial planning can be difficult.

Another important factor for many of us, albeit not a financial one, is the difficulty that can come with owning a pet when you’re renting. Australians love their pets and while not impossible, owning a pet when you’re renting can limit your options. 

Finally, and perhaps most significantly when renting, despite your rental outgoings you aren’t left with anything tangible at the end of the lease.  Thinking of buying? Buying a house is often the biggest purchase you’ll make in your life and committing to a 25 or 30-year home loan may seem daunting, but there are definite upsides to buying your own home.

Thinking of buying?

Buying a house is often the biggest purchase you’ll make in your life and committing to a 25 or 30-year home loan may seem daunting, but there are definite upsides to buying your own home.

Firstly, it’s yours! You can change the aesthetics, renovate, landscape or make any other changes to suit your lifestyle. Owning your own property will provide you with the stability of knowing that it’s unlikely you’ll have to move unless you decide to, so you can settle in and make it your own.

Initially the costs involved in purchasing a property are significant, and include a deposit, mortgage and conveyancing fees and insurance, however there are ways to manage these costs depending on your circumstances such as;

  • Select lenders allow you to add mortgage fees to the amount you need to borrow, rather than provide cash for these costs. Some lenders also allow you to consolidate your other loans into your mortgage, allowing you to reduce the amount of interest you pay overall.
  • Find out if you’re eligible for the First Home Owner Grant, a one-off grant payable to first home owners that satisfy the eligibility criteria (find out more at firsthome.gov.au).

Financially, owning your home allows you to have consistency in your outgoings. Mortgage payments, council rates, insurance premiums, utilities and maintenance costs can mostly be planned for in advance, so you’re less likely to have unexpected bills.

When owning your own home, it’s important to understand that it’s likely that all or most of your investment potential will be absorbed within property. Whilst a property is generally a significant asset, it does result in being limited in terms of diversifying your investments. And, like most investments, property has the potential to reduce in value.

Another consideration when buying a home is that your flexibility to move becomes somewhat limited – unlike renting, the cost of moving is much greater when taking into account real estate agency fees, solicitor costs and stamp duty (if you purchase again). 

Whilst owning your own home comes with responsibilities, it also means that you have a tangible asset in return for your outgoings.

Whether buying or renting, consider what’s important to you and your lifestyle. Is it flexibility, security, or perhaps it’s more of a financial consideration? 

For more information on buying versus renting, go to the Home Sweet Home tab at eisuper.com.au/MoneyMatters.

 


1 http://bit.ly/ABS-Residential
http://bit.ly/ABS-Housing