The decision to rent or buy a property is one of life’s major decisions. Not only does it impact on how much money you have left at the end of the month, but it also affects your lifestyle and your overall savings. People constantly buy homes because its important to them to ‘put down roots’ and they see that owning a home is an investment which will grown. However, in some instances people may have been financially better off renting. Similarly, many people decide to rent for flexibility and minimal responsibility, even though they would amass a larger net worth over time if the purchased a property.
The majority of people are bias towards ownership. Buying and owning a property is ‘big business’ for everyone involved from the banks to mortgage brokers to home improvement stores, we are constantly bombarded with the message that being a homeowner is a highly sought after goal. But owning isn’t better than renting, neither is renting simpler than owning. People need to weigh up the pros and cons of both options and consider their personal situation.
Stability Or Flexibility
Owning a home brings an array of benefits including a sense of stability, belonging to a community and the pride of ownership. However it’s important to remember that if the housing market is to go down (and even when it’s up) if you need to sell for any reason there are significant costs involved. Changing your mind about your living situation is far more expensive when you own the property.
For a renter moving each time when your lease ends without penalty is a draw card, but this can also mean that if you would like to renew your lease your landlord is under no obligation to do this and may force you to move.
Throwing away Money?
Most people are familiar with the term ‘rent money is dead money’. This statement is not always the case. Firstly, you need a place to live and that is always going to cost money, in one way or another. Secondly, while it’s true that your not building equity with your rent payments, you also aren’t building much equity with the money your putting towards your property. The overall cost of ownership tends to be slightly than the overall cost of renting, even though your mortgage payment may be similar (or even lower than) the cost to rent.
Below are some examples of expenses that you have as a homeowner that you don’t have as a renter:
- Property taxes
- Council rates
- Water rates
- Repairs & maintenance (Indoor & Outdoor)
- Pest control
- Homeowners insurance
- Pool cleaning & maintenance (if you have one)
Possibly the biggest throw-away expense in homeownership is mortgage interest, which can make up the majority of your mortgage payment in the early years of a long term mortgage.
Even renovation projects don’t often increase the value of your home by much more than what you spend on them. This is why it’s really important to consider which improvements will give you the best return.
Once you add up all these costs, you may find that your financially better off by renting and investing the money you would have put into your home elsewhere such as an retirement fund.
As a renter you know exactly home much you will be spending on housing each month. When you own, you may pay nothing more than your mortgage and regular bills one month, and then may need to spend thousands the next for an urgent repair. But as a renter you will never have to pay for additional repairs helping you maintain your budget.
However as a renter, you do face unpredictable rent increases each time your lease is up for renewal. If you live in a desirable suburb, rent increases can be steep, however as an owner you may be able to get a fixed-rate mortgage and your payments will never increase.
Home ownership is often referred to as a way to build wealth, however you home can in fact lose value – lots of value. The suburb you moved into could decline, there could be a significant population decrease, surplus of housing could be created from a construction boom, all of these things could impact the value of your home.
Do you like to keep your weekends and evenings free? Do you work long hours or travel frequently? If so, the commitment that comes with owning your home may be more than you may want to take on. There are always projects around the house that you will need or want to take care of.
If you rent, your landlord has the responsibility to take care of all repairs and maintenance – though this may not be done as quickly or as well as you would like.
The Final Decision
Which option is best for you isn’t just about money; it’s also about comfort and your vision for your life. Ignore people who tell you that owning always makes more sense in the long run, that renting is throwing away money, or that it makes more sense to buy if your monthly mortgage payment would be the same or less than your monthly rent payment. Housing markets and life circumstances are too varied to make blanket statements like these.
When considering renting or buying, the decision isn’t solely based on money, its also about comfort and the vision you have for your life. Ignore people who tell you that owning makes more sense, and that renting is throwing away money, or that it makes more sense to buy as your mortgage payments would be the same or less than your rent. Housing markets and life circumstances are too varied to make these statements.
Despite added expenses and responsibilities associated with owning a home, many people chose it over renting. It provides a more permanent living and lifestyle option. With this in mind, the decision to rent or own is not just a financial one but ultimately an emotional one.