Buying versus renting
As you would expect, the reality of the buying versus renting debate is there are pros and cons for both. It depends on your personal circumstances and your strategy for wealth creation. More often that not, the reality is that it’s cheaper to rent where you want to live and better to invest elsewhere, so let’s take a closer look.
Gone are the days when the Australian dream to own your home, toil to reduce your debt and strive to pay off the mortgage in record time is a desire of the masses. With communities becoming more internationally focused than ever before and with the influence of technology to bring the world into the palm of your hand, consumers have never been more spoilt with objective consideration.
So what is driving your decision? Is it long-term growth, emotional attitude, locational or convenience? These are ultimately the driving factors for your very personal outcome, so let’s frame it from a wealth-creation perspective for the purposes of the discussion.
The potential advantages for buying are emotional stability; personalising your space to suit your lifestyle needs and preferences; capital growth on your investment; long-term savings by paying off your mortgage early; and available grants to offset deposit stress.
The possible disadvantages of buying are being an owner-occupier may mean a lack of flexibility as it is not so easy to ‘pack up and leave’ (e.g. to move closer to a better school) if you are heavily invested in a particular property and overcapitalising on your home with “aesthetic” changes may make for a more comfortable home but can sometimes not be returned should you need to sell.
The possible advantages of renting are the flexibility to up and go or alternatively upgrade or downgrade depending on your changing circumstances; it can be cheaper to rent where you want to live than to own (e.g. inner-city locations); the fact that renting is cheaper could also lead to more disposable income being available; and rates, maintenance and, where applicable, owners corporation fees are not the concern of renters.
The possible disadvantages of renting are that renting can give the tenant flexibility to move. Conversely, they can find themselves being asked to move when it doesn’t suit them. The intrusion of inspections, valuations and the sense of being beholden to someone else’s needs can leave tenants feeling unsettled while changes are not permitted without approval i.e. cable installations, picture hooks, improvements.
To buy or not to buy, that is the question …
To buy positions you with a forced savings that ultimately provides you with a growth on your investment over an extended period of time – unlike renting, which can be less money spent but no return on your spending over the same course of time. So on this basis it makes sense to buy. However, what about the idea of renting and buying?
As suggested earlier, more and more today we see people renting where they want to live, which is generally inner-city locations and buying in outer-suburban areas. This flexibility gives investors the ability to enjoy the lifestyle they want to live while not burning their cash on rent. With money invested in sometimes multiple investment properties in the middle-ring to outer-ring suburbs, renters are able to have the best of both worlds.
Long term, this can give investors the leg up to consolidate their investments down the track and purchase a single residence in the area in which they have been renting. Remember there are more expenses to owning your own home as opposed to renting. If you can free up some disposable income to invest for less, it will ultimately put you where you want to be – which is owning your home in a more desirable location than you could previously afford.
The cost to own is interest on mortgage repayment; rates; insurance; ongoing maintenance; utilities; and regular one-off capital expenditure. The cost to rent is rent and utilities.
Ultimately, like all investment decisions it comes down to your personal circumstances and preferences. Buying is always a good option and renting has its flexibilities. But if you’re starting from behind the post a little, a combination of the two can let you start living the lifestyle you want for yourself sooner rather than later.
As always, the most important thing is to make sure you do your homework and make the best decision for your life. Happy investing and/or renting!
Words: Bryce Deledio, Uniq Finance