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The Big Debate: Should You Buy or Rent Your Home?

The Big Debate: Should You Buy or Rent Your Home?

According to research, some 67% of households own their house while 32% are renters. Owning your own home is something a lot of people aspire to, but it’s not necessarily right for everyone. Renting as an alternative can have its own advantages. So what are the benefits and potential limitations of either buying or renting, and how might your individual situation impact what’s best for you? Both your personal priorities and financial circumstances can affect your decision, and you’ll want to take time to weigh up the pros and cons for you. The following article will assist you with your decision-making on whether to be a homeowner or renter.

Benefits of buying a home

Becoming a homeowner provides an opportunity to build wealth and gives you a sense of permanency and connectedness with the local community. It also comes with more discretion and control when it comes to making property modifications and changes. One of the biggest benefits of purchasing your own home is the potential of owning a major asset that, more often than not, appreciates in value over time. Committing to mortgage repayments forces you to save instead of spending the money, and you could access government grants for homeowners to help with your purchase. In addition, you might have a greater sense of security and connectedness to the local community.

As you build up equity, you can use it to buy another property, consolidate debt, or finance renovations. If it appreciates in value, you could use it for retirement planning or end up leaving more wealth for your children to inherit. You’ll have the certainty of relatively fixed housing costs, even if you have a variable-rate loan. As the owner, you can make any changes you like to your property. What’s more, you’ll always have the option to rent out your property, generate income, and live somewhere else. If the time comes to sell, you can benefit from capital gains tax exemptions as it’s your principal place of residence.

Drawbacks of buying a home

Homeownership can offer more control and security. While owning your own place gives you a lot of security and forces you to save by committing to mortgage repayments, it comes with certain drawbacks. More specifically, you’re looking at a major financial commitment, including significant upfront costs such as stamp duty, housing deposit, conveyancing costs, and loan establishment fees. Moreover, you’re likely investing a significant amount of your income in the one asset, with no diversification. A 20% housing deposit can take many years to save, and you’ll be paying a lot in interest over the term of your mortgage.

Mortgage payments, in addition, can be larger than rental payments, and even if not, the total cost of ownership tends to be more than the total cost of renting. You’ll also be paying strata fees, council rates, insurance, maintenance, repairs, and other unexpected costs yourself instead of relying on the landlord to cover these. You’ll be in negative equity if your home’s market value falls below the value of the mortgage. This means you’ll have a hard time remortgaging or selling your property. If unforeseen circumstances arise and you’re unable to make your mortgage repayments, you could end up losing your house.

Benefits of renting a home

Renting offers its own advantages. It could give you more flexibility, help you save more money, and let you live in a suburb you like. One of the biggest pros of renting is the opportunity to live in an area that you might not be able to afford to buy into. Renting comes with lower upfront costs as all you typically need is around one month’s rent for the bond. Additionally, you have the flexibility to pack up and to upsize or downsize into different properties as your needs change; for example, as your family grows.

Rental payments can be lower than mortgage repayments. This gives you an opportunity to save more money, whether to invest or build wealth in other ways, by investing in more liquid assets than property. For instance, you could invest the extra money in stocks that give you a higher return and more diversification than property ownership. You could even become a rentvester: renting to live and buying an investment property. If your investment property doesn’t break even, you could claim tax deductions. Finally, as a renter, you’re not paying for upkeep, maintenance costs, strata fees, and other costs associated with home ownership.

Drawbacks of renting a home

As a renter, you’ll be subject to rules relating to personalising your residence, paying “dead money”, and have little security when it comes to how long you can stay for. Renting might not be for you if you’re looking for complete discretion in changing and renovating your home. With the regular property inspections that come with renting, you’ll need to be comfortable with a little less privacy.

Also, instead of the prospect of eventually paying off your mortgage, as a renter you’ll be required to pay rent forever. The landlord can increase the rent at any time. You don’t get any returns from the rent you pay as you’re effectively helping someone else pay off their mortgage instead of the “forced savings” with a mortgage that enable you to build wealth. Finally, you might find yourself having to move at short notice if the landlord decides to sell or reclaim their property to live in.

So should you buy or rent?

The question of whether to rent or buy can depend on your life stage and your current priorities. Consider your current goals, financial situation, and short-term and longer term plans. What’s your risk profile and how much debt are you comfortable committing to? Are you looking to settle permanently into the local community? Work out how much you can afford to borrow. Do the numbers and determine whether you’ll have enough money left over after mortgage repayments to maintain your preferred lifestyle. As long as you look at the bigger picture and take your own goals and situation into account, you should be able to come to the right decision on whether to rent or to buy.

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