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November 26, 2020

Getting a Home - Should I Rent or Buy a House?

Getting a Home - Should I Rent or Buy a House?

Should I rent or buy a house? This is a question most often asked by young people who have just started their careers and are now making their mark as an independent. With all the expenses that new property owners have to take care of, especially in Australia’s inflated property market - is it worth paying for or should you just rent cheaply and put your money toward other investments?

If you are financially capable, is now the best time for you to buy, or should you just rent? There are many opinions out there that say “it’s best to buy”, “rental money is dead money”, or “it’s not good to buy property at this time” - and these opinions can leave you feeling very confused about whether it’s better to pay for rent or mortgage.


Is it better to buy or rent a house?

The main benefit of owning property is being able to take advantage of capital growth, giving you stability, the freedom to renovate and the ability to build equity in your home. On the other hand, renting frees up your savings (instead of having to save for a house deposit), gives you more flexibility to move around, and provides an opportunity to diversify your investments (instead of putting it all into your property). Whether you rent vs buy a house, there are the big things you will need to consider:


Financial Situation

check your financial situation before renting or buying a house

When deciding whether you should rent vs buy a house, your financial situation is the first thing that you need to consider. If you can afford to purchase a house without sacrificing much of your income, then you should have less to worry about.

Take note though that purchasing a house has more costs involved, like deposit, stamp duty, government fees, maintenance costs, etc. If possible, prioritize savings and family needs first, before investing in real estate. If you are currently paying back high-interest debts such as personal loans or credit cards, then it is best not to add more to your liability.

Rent for now, as there is no such rule that you need to have a house before hitting 35 anyway, so don’t get pressured. You also need to consider your ability to pay in case you lose your job. If you get laid off today, would you still be able to pay your mortgage with your savings while looking for another job? That is another question to consider. 


Work

Where you work has a big impact on whether it’s better to pay a rent or mortgage. Is your work location-based, or do you work so remotely that buying a home right now doesn’t seem practical? If you are the kind of person who is always on the go, you might want to put off buying a property for now until you have set your sights on one location. Why?

Because if you buy a property right now, let’s say in Darwin, and then because of circumstance you end up in Sydney, selling your house then buying again would be very costly and tedious. 


Long-term goals

check your long term goals to see whether to buy or rent a house

This is related to number 2 above, but this section deals with longer-term goals. If you are the type of person who doesn’t want to live in your current location anymore, then putting off buying would be a better option until you decide where you want to settle.

For example, you currently live in Sydney, but you want to migrate to the US or Japan in 5 or 10 years, you can rather save and/or invest your money for future housing costs. The right timing also depends on the direction that the market is going in, but if you have already decided, then buying could be a good option.


Knowledge

Buying a big investment like a house is no joke. It is one of the most significant financial decisions that anybody will ever make, and it’s important to consider different factors and learn a bit about renting vs buying before making such a big financial decision.

Why do I need to learn, can’t I just pay an agent to do it for me? Here are the reasons why it’s a good idea to learn some things yourself. Realtors can cost you a lot of money, therefore, you need to know how to choose the right agent for the job. House purchases involve drafting up legal contracts with lots of paperwork, and the process also involves a fair deal of negotiation, so this is where a trusted realtor can help you understand what’s going on before you sign any contracts.

Knowing what to check for in the property you intend to purchase can save you money as well. For example, you might tend to focus more on cabinets and wallpaper without realising that you should check kitchens, baths, electricals and water pipes first. It is also helpful to research if the area floods and the incidence of crime in the neighbourhood. The purchase price is not the only thing you need to consider - you need to know the other costs involved as well.

For example, comparing properties can help you make important decisions, like choosing between Condo A with larger ongoing strata fees but priced lower, against Condo B which has a higher price but lower fees. If you do not want to commit the time to research real estate, it is better to put off buying until you have done your due diligence. What you don’t know can cost you more in the long run. Remember, it may take you 10 years or more to pay your property off, so it’s best to learn what you can before parting with your hard-earned money.  


Commitment

buy or rent a house with your partner

This does not refer to commitment in making payments, but marriage commitment. When you get married, there are state laws that dictate how your assets are treated, and how they get distributed in a divorce. If you are not married, the same rules don’t necessarily apply.

If you want to buy a house with someone, you need to think long term. If you buy a house with a partner who is not your spouse, you need to have an exit plan as well if things don’t go your way. It’s a good idea to have everything in place between the two of you, like mortgage payments, liability and maintenance payments. 


Investment opportunities

If your goal is to make this your investment (i.e. you will rent it out), then purchasing can be a good idea, but you need to know your facts before buying. 


Renting Vs. Buying a House Pros and Cons

Renting Pros

The pros of renting include freeing up your savings so that you can save toward other goals such as paying for your education or diversifying your investments, and also gives you the flexibility to move.

Renting Cons

On the other hand, the cons of renting include being at the mercy of landlords, potentially high rental costs in popular suburbs, and a lack of incentive to save!

Buying Pros

The pros of buying include the appreciation of your property (aka. capital gains), the ability to build equality, the freedom to leverage the equity to finance another investment (ie. an investment property), and the security and stability that comes with owning your own home. 

Buying Cons

On the other hand, the cons of buying include the fact that interest repayments will be counted as “dead money”, the opportunity cost of other investments you could make with the money spent on buying property, and the costs of ownership, which include stamp duty, conveyancing, commissions, advertising costs and ongoing costs such as rates, repairs, depreciation, body corp fees and insurance. 


So there you have it - the 6 factors to consider when deciding whether you should rent or buy a house. In the end, it ultimately boils down to your readiness to commit. For some people, not having enough money doesn't stop them, as getting a house will motivate them to work harder.

For others,  they want to feel safe first that they can pay the mortgage based on their current situation. Whatever you decide, make sure you are happy with your decision, and importantly, it should not add more stress to your life. After all, aren't we supposed to live better and happier? If you want to buy but you still have debts to face, contact our office on 1300 003 328 for a free and confidential debt assessment, and let’s get you started on your journey to a debt-free life! 

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