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The Great Housing Debate: Should You Rent or Buy?

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The Great Housing Debate: Should You Rent or Buy?

According to a recent Census, around 67 per cent of Australian households are owner-occupied. It’s the great Aussie dream and more and more people are buying into it, literally.

The truth is there are pros and cons for both options and ultimately, it’s up to you to work out whether renting or buying a home suits your personal and financial situation best.
George Raptis.

It’s not for everyone though, and there are numerous reasons why. For many, the very notion of home ownership is an unattainable dream, mainly because of financial limitations. This issue becomes more problematic in geographic pockets around the country, where property markets prove more expensive to break into (Sydney and Melbourne lead the pack here).

For others, finances have little to do with their unwillingness to buy.

Here, we’ll examine the pros and cons of renting and buying, and why individual circumstances matter. As George Raptis, Director of Metropole Property Strategists in Sydney, points out “The truth is there are pros and cons for both options and ultimately, it’s up to you to work out whether renting or buying a home suits your personal and financial situation best.”

Advantages of Buying a Home

There are many advantages to owning your home and the biggest one is that you have an asset that can appreciate over time, which gives owners a sense of financial security. There’s peace of mind in the nest egg a property grants; one that can be passed onto children or used as collateral to buy a second home.

Mental and Community Benefits

Using the equity in your first home to purchase your second is appealing to many homeowners since it allows you to build a property portfolio over time, renting out your investment properties to tenants to build more wealth. Those on a fixed-rate interest loan enjoy stability in terms of housing costs from year to year, too.

Many property investors don’t realise that they could be claiming thousands of dollars in extra entitlements… through obtaining a tax depreciation schedule.
Paul Wilson

Further, there can be tax benefits to owning properties as an investment method. Paul Wilson, from We Find Houses highlights this: “Many property investors don’t realise that they could be claiming thousands of dollars in extra entitlements… through obtaining a tax depreciation schedule.”

For owner-occupiers, the unrestricted changes you can make in your home is another appealing aspect. If you want to pull down a wall, rip up carpet, retile your bathroom or paint your bedroom, you can do all of this as you please with complete freedom.

From a mental and emotional perspective, owning your own home brings with it a sense of pride and often makes you feel more connected to the community, as you feel you own a small part of it.

If purchasing a house for the first time, look at our article Planning to buy your first home? 5 things you need to know.

Disadvantages of Buying a Home

The biggest downside to owning your own home is the large upfront costs required. It’s the biggest barrier for first-home buyers in Australia today, as many find they’re unable to save the 5 or 10 per cent deposit required.

Ongoing costs like maintenance and repairs can also become a financial burden for those who are already struggling to afford mortgage repayments. These are covered by the landlord when you’re renting, but as an owner-occupier you’re required to front up the money for all of these unexpected charges.

Occupied Households

Additional costs like strata and council rates must also be paid regularly. Often, the interest and fees you pay over the life of your loan can be rather significant too, and in many cases aren’t factored into the costs when you’re budgeting pre-purchase.

If you look to sell your home to move into something better and the market is weak, you might find yourself with little to no profit.

There is another financial risk in owning your own home, too — your property value could decrease over time, due to market pressures or other factors that you have little or no control over.

If you look to sell your home to move into something better and the market is weak, you might find yourself with little to no profit.

The biggest disadvantage is the possibility of your house being repossessed if you default on payments regularly. This could occur if you were to become involved in an accident or other unforeseeable scenario, where you are not able to work for an extended period of time.

Advantages of Renting a Home

Renting a home does have some financial benefits and the greatest one is the low upfront costs. In most scenarios, a four or six-week bond applies to renting a property, which can be far more easily managed than a deposit on a home.

Sharing the rent is another big bonus if you’re renting a home with multiple tenants.

Your rent, depending on the area you live in, can be cheaper than mortgage repayments week-to-week. And there’s also the benefit of not having to pay for maintenance and repairs in the home. These costs are all covered by the landlord.

Sharing the rent is another big bonus if you’re renting a home with multiple tenants. This is par for the course when you’re younger and moving out of home for the first time. It allows you to use what little income you might have at this time on other expenses like clothing or entertainment.

Rent Benefits

Of course, not all the advantages are financial. There’s a sense of freedom in renting because the leases are usually locked in only for a six- or 12-month period. This allows you to move as often as you wish, which is of particular advantage to those who travel often for work and won’t be in a fixed location where they can tend to a home’s ongoing needs.

Being able to live in an area you probably couldn’t afford to buy in — even if it is temporary — is another big advantage to renting a home.

Disadvantages of Renting a Home

They say that rent money is dead money and there is certainly some truth to this concept. As a renter, you are essentially paying off all or part of someone else’s mortgage with each rent payment, so your money is not growing over time and there’s no investment potential.

While leases are fixed for a period of time, it’s rare that you’ll ever sign one for longer than 12 months, which means you can be asked to leave with a month or less notice from the landlord.

There is also a lack of security in renting. While leases are fixed for a period of time, it’s rare that you’ll ever sign one for longer than 12 months, which means you can be asked to leave with a month or less notice from the landlord. For those looking to settle into a home and become part of the community, this can cause major disruption.

There is also a lack of privacy involved in renting a home. Landlords can opt to run regular inspections, which mean your space is set to be invaded from time to time. This can cause stress and worry on the part of the tenant.

Happy Family

There are obvious lifestyle restrictions when it comes to renting, too. From a decorating perspective, landlords in most cases forbid the use of hooks in walls, painting any rooms or making any other cosmetic changes to the home. Doing so can result in portions of your bond (or all of it) being withheld from you at the end of the lease period, so that the owner can correct the damages.

Some owners forbid pets in their rental homes, so for families eager to embrace a cat or dog, this is sometimes off limits.

Whichever journey you decide, ensure you have some financial safeguards in place.

Deciding whether renting or buying suits your individual needs takes time and careful consideration. Think about your goals, your finances now and what they might look like in the future, and what your personal preferences are with relation to having pets, moving frequently, ties to the community and more.

Whichever journey you decide, ensure you have some financial safeguards in place. These might include a savings account for the house, and also investing in contents or landlord insurance to prevent you ever being in a situation where you’re left with nowhere to live.

 

http://www.globalpropertyguide.com/Pacific/Australia/Price-History

http://propertyupdate.com.au/renting-versus-buying-which-one-puts-you-on-top-of-the-property-ladder/

http://www.apimagazine.com.au/blog/2015/07/youre-losing-out-on-unclaimed-tax-depreciation-entitlements/

http://www.ahuri.edu.au/publications/projects.asp?Search=True&Theme=Home_Ownership&Sort=Title&Direction=ASC#results