For generations, it’s been the great Australian dream to own your own property. However, today the country is suffering from a house affordability crisis making it difficult for new buyers to enter the market.
So, should you save every penny to buy into the dream or keep renting and invest your cash elsewhere? We share the pros and cons so you can make an informed decision before signing a contract.
Buying: The pros
• Buying can provide a sense of ownership
One of the great benefits of buying your own home is the sense of ownership you feel. There’s nothing quite like putting the key into the front door of your single story home for the first time knowing the property is yours. You’ve got your own place to make your own personal mark and for some, the responsibility is life changing.
• Owning gives you stability
Unlike renting, owning your own home gives you stability knowing you won’t be displaced when a landload decides not to renew your lease or sell the property.
• It can be a safe investment
Bricks and motor is considered one of the safer investments as typically property increases in value over time. You may benefit from a steady growth in capital and if you decide to rent the home out, you may enjoy a consistent monthly return.
• You can improve the property’s value
Owning your own home allows you to carry out renovation works with the intention to improve your property’s value long-term. Alternatively, you may be able to reinvest your home’s equity into another investment, such as shares, to broaden your financial portfolio.
Buying: The cons
• The property market fluctuates
One of the challenges of purchasing real estate is the fluctuating property market. You may decide to buy at a time when prices are high, which can be fine if you end up selling in a similar market. However, there could be a time when you want to sell and property has plummeted in your area. This means you may not be able to achieve the profitable asking price you need to gain a return on your investment.
• There are upfront and ongoing costs
Owning your own home may result in upfront costs that can impact on the amount of money you have to spend on a property. Costs like the deposit, legal fees, conveyancer bills and stamp duty all add up. You’ll also need to accommodate for ongoing costs in maintaining your property as well as regular fees such as council rates, body corporate, land tax and insurance.
• You’ll need to pay interest
You’ll need to be prepared to pay interest and bank fees on your home loan and these can be significant. As with the property market, these interest rates will fluctuate over the period of your loan, especially if you’re on a variable rate.
Renting: The pros
• You can try before you buy
Buying a home is a long-term commitment and the area in which you buy can greater effect your lifestyle and the home’s future value. Renting gives you the opportunity to try before you buy in a particular area knowing you can move 6 or 12 months later at the end of your lease. This could mean moving from a small apartment to a larger single story home or relocating to another state entirely.
• You’re free to invest anyway you please
Buying a home often means your savings, as well as a large portion of your monthly income, are all invested in property. Renting may give you the flexibility to diversify your investments by investing your money in a couple of different areas that may provide you a greater return. Or you could use that money to travel, study or start a business.
• No investment risk
One of the biggest benefits of renting is that you have no investment risk. The value of the property doesn’t affect you as a tenant. In fact, if property values decline, you may even benefit from the reduced pressure on the rental market.
Renting: The cons
• You’ll be paying off your landlord’s investment
Renting a property means you’ll be paying off your landlord’s property investment rather than your own. While it may be an easy financial decision in the short-term to rent, long-term you may not have any assets to show for the money you’ve outlaid over the years.
• Rental payments are ongoing
Typically, rental costs steadily increase thanks to inflation and the rise in the property market. While your mortgage repayments may initially be higher than your monthly rent, over the life of the loan, this will decrease as you pay off the principal. If you choose to live a life as a tenant, once you retire you may find it difficult to pay your rent at the end of each month.
• Lack of security
As a tenant, you don’t have the same level of security as you would if you owned your own home. Even if you are the model tenant, there’s no guarantee your landlord will renew your lease. This will force you to pack up and search for another home. Depending on the rental market, this could mean you need to pay substantially more rent to remain in the same area or style of home.