Renting vs buying: What to consider before you decide 

Potential homebuyers are finding it increasingly more difficult to get a foot on the property ladder than ever before. With property prices having skyrocketed in many parts of Australia, and the increased cost of living squeezing household budgets, saving for a deposit is no easy feat. In addition, rising interest rates are reducing buyers’ borrowing capacity, impacting how much they can spend on a new home. But, it’s not all doom and gloom there are many benefits to owning your own home.

If you’re wondering whether you should continue to rent, or take the plunge into home ownership, there’s a lot to consider. While the decision will ultimately depend on your financial situation, along with your investment and lifestyle goals, there are other important factors to consider too. Here’s a rundown of the pros and cons of both renting and buying, so you can better understand your options and make the right decision.

Renting may offer you more lifestyle and financial flexibility than owning a home. Here are some of the pros:

• Lower upfront costs. A bond, equivalent to four weeks’ rent, is usually your main upfront cost as a renter. Buyers need to save for a deposit and additional upfront costs, such as stamp duty and legal fees, which make buying a home a very expensive proposition. According to the Sydney Morning Herald, saving for a 20% deposit (the amount needed to avoid paying lenders mortgage insurance) for the median home price in Australia now takes a record 11.4 years.
• Rent may be cheaper than mortgage repayments. Depending on the property and the area where you’re renting, your rent could be less than a typical mortgage repayment. With record low interest rates now a thing of the past, homeowners on variable rate home loans are facing higher mortgage repayments. Additionally, if you’re living with housemates, you can split the cost of renting and save even more money each week.
• Less to spend on maintenance and repairs. It’s generally your landlord’s responsibility to pay for the property’s maintenance and repairs, and other costs such as strata fees. That means more of your income can go towards funding your lifestyle and hobbies, other investments, or saving for a deposit to buy your own home.
• More flexibility and freedom. If you don’t want to be tied to a particular area or property, then renting may be for you. Once your lease term is up, you can move out with a notice period of between 14 and 28 days (depending on your state or territory). This gives you more flexibility to try new property types or suburbs – including areas that you may not be able to afford to buy in.

While renting may be a great option, there are also some drawbacks you may want to consider: 

• You’re subject to rent increases. According to The Guardian, many landlords have been raising their rents to recoup rising borrowing costs. With the increasing cost of property ownership, there’s still plenty of demand for rental properties. Depending on the property and suburb you live in, the rent you’re paying could be more than the mortgage repayments.
• You’re paying off someone else’s asset. One of the biggest downsides to renting is that the money you’re paying each week is going towards paying off someone else’s mortgage, rather than your own. This ‘dead money’ isn’t going towards funding your own investment opportunities or building your financial security.
• More restrictions. Because you don’t own the property, there’s often restrictions you need to abide by, such as not being allowed to alter the property to your liking (e.g. you may not be permitted to paint the walls a different colour or drill into walls). In some states, landlords may have a no-pets policy, making it more difficult for you to find a suitable property for you and your furry friend.
• Less privacy and security. Most leases are for a 12-month period, meaning you can be asked to leave at any time once the lease term has expired. This can make it difficult to settle completely into a particular home or community. Landlords can also conduct inspections of their property which can be disruptive.

Buying your own home can be very rewarding. Here are some of the pros:

• Freedom to upgrade and renovate. When you buy a home, it’s yours! You can choose to renovate it, or even knock it down and rebuild, subject to council approval. The exception to this is buying a strata property such as an apartment or townhouse. For these properties, there may be some restrictions on modifications.
• Long-term security. When you own your home, you can’t be forced out by a landlord when their circumstances change. As long as you’re able to meet your mortgage repayments, you can settle into your new home for the long haul. That reassurance for you and your family is priceless.
• Forces you to save. By making regular mortgage repayments you’re putting your money towards paying off a home loan rather than spending it. In this way, paying down a principal loan acts like a forced savings plan, with your money going towards paying down your debt and building your financial security.
• Helps you build wealth. Although the housing market can be volatile, property values generally increase over the long term. If you’re looking to hold on to the property for a number of years, and it’s a good quality property in a desirable location, its value may go up, increasing your wealth and financial security.
• Can be used as equity for a second property. Once you own one property, you can potentially use its equity (the value of the property minus the debt) to fund the purchase of another property. That way you can buy an investment property or second home without needing to save for another deposit all over again.

Home ownership may bring you many benefits and a sense of great achievement, but it does come with some costs. Here are some of the downsides:

• It’s expensive. Along with the significant upfront costs of the deposit, stamp duty and legal fees, there’s ongoing costs to consider too. In addition to paying interest on your home loan, you’ll need to pay council rates, land tax and water. If you’ve bought an apartment, there’s also strata fees to budget for and, in some cases, a special levy, which is an additional expense for owners if large-scale work is required on the building.
• Maintenance and repairs can be costly. When you own your own home, it’s up to you to maintain it and cover the cost of any repairs. That’s why it’s important to have the right home insurance policy in place so you’re covered financially if an insured event causes loss or damage to your property or its contents. Learn more about home insurance.
• Less flexibility. Unlike renting, purchasing a home means you’re tied to a significant financial commitment, preventing you from investing in other opportunities. If your circumstances change, you can always sell. But depending on the market at the time, there’s a risk that you could sell at a loss if the value of the property has decreased.
• Missing repayments can lead to foreclosure. If you end up in a situation where you can’t meet your mortgage repayments, the lender may need to sell your property to pay off the remaining mortgage. Of course, this is a worst-case scenario, so if you do find yourself in financial difficulty, speak to your lender as early as possible so you can work out a solution.

Decide whether you should rent or buy with these tips:

• Assess your financial situation. Look at your income, living expenses, any outstanding debt and existing assets. A financial adviser can help you get a true picture of your finances and work out what you can allocate to mortgage repayments or rent without getting into financial stress.
• Consider your current and future lifestyle. Think about what’s important to you. For example, do you want to settle down and raise a family, or would you prefer to have the flexibility to move around or travel?
• Decide where you want to live. Create a shortlist of suburbs and check out recent sale and rent prices. This will help you establish the budget you’ll need to buy or rent in your preferred area.
• Research government incentives. Depending on your situation and the property you’re looking to buy, you may be eligible for government incentives such as the First Home Owner Grant. Speak to a mortgage broker or financial adviser to find out more.
• Have adequate insurance. Whether you decided to rent or buy, having the right insurance policy may cover you financially when you need support the most. Home Building Insurance, Contents Insurance and Renter's contents insurance are all designed to cover the cost of loss or damage to your home or its contents from insured events. Find out how much it might cost to replace your home and/or contents with Home Insurance Calculators.

Deciding whether to rent or buy can be a difficult decision, however, neither is right or wrong and it’s entirely up to you. While your financial situation is likely to be your main consideration, you should also assess your current and future lifestyle needs, your investment goals, and where you see yourself living. Make sure you do plenty of research, and, if you need additional guidance, it’s a good idea to speak to a financial adviser or mortgage broker.