Owning your own home
Although renting is often a cheaper option, in the long run, the money you pay on a mortgage goes towards your own financial benefit, not someone else’s. There are also many other good reasons to get into the property market:
- A buyer’s market: The RBA’s recent 0.25 per cent interest rate cut, rising rents and more sellers than buyers in the market certainly paints a picture that now is a good time to buy.
- Falling property prices: RP Data-Rismark (provider of property data and analytics) released figures in October revealing that property prices across the board have fallen for nine months in a row in 2011. In September, prices fell by 0.2 per cent after falling 0.4 per cent in August. This presents good opportunities for potential buyers.
- Lower deposit required: The 5 per cent deposit home loan is back. After the Global Financial Crisis, most lenders tightened their belts and stopped offering potential homeowners the chance to get into the market with a smaller deposit. But now that the economy is cautiously heading toward recovery mode, many lending institutions are once again offering home loans that require a lower deposit. Some lenders also now accept 6 months of rental receipts as proof of a valid savings history. Online calculators can also help you determine your borrowing power based on your current rental payments.
- Rising rent: An undersupply of dwellings means that rents nationwide are rising as vacancy rates remain low. This is good news for investment property owners and bad news for renters. The Select Committee on Housing Affordability in Australia report estimates there is currently an annual shortfall in housing supply – relative to underlying (population-based) demand – of 30,000 dwellings.
- Stability: Owning your home can offer greater long term stability in where you wish to live. Renters are often at the mercy of landlords in terms of how long they can stay at a property, and you may be forced to move regularly. This can be particularly unsettling for people planning on having children.
The main benefit of owning your own home, aside from a sense of stability, is that it opens up possibilities for future wealth creation.
Not only do properties offer great potential for capital gain, any money you spend on renovations may increase your property’s value. Once you have built up some equity, you may also be able to use it as a springboard to other investment opportunities.
And, you’ll never have to ask a landlord if you can hang a picture or get a pet!
Renting a property
Housing affordability in Australia is at an all-time low, which means many young Australians believe that owning their own home is a pipe dream. Given the huge lifelong expense of buying a house, some financial pundits argue that there is greater financial gain in renting:
- Easier to move around: Renting means you are free to move wherever and whenever you want; a lease is easy to break if you are willing to pay advertising costs for the owner to find a new tenant.
In comparison, selling your own home means you can expect to pay around 4 per cent of the sale price in agents’ fees and advertising. When you’re buying, expensive stamp duty fees can be prohibitive. While stamp duty varies from state to state, you can expect to pay anywhere between 3.5 to 6 per cent of the purchase price, which means on a home worth $500,000 you’re up for around $20,000.
- No additional costs: The cost of renting is quite straight forward – there’s the bond plus the rent. In contrast, buying a home involves the extra costs of government charges, legal contracts, property title checks, credit checks, loan establishment fees and so on.
- Renting is cheaper than owning: Your monthly rental payments are often cheaper than a mortgage and interest payments on a similar dwelling, especially in inner city areas.
- Better location: You’re more likely to be able to afford to rent rather than buy near metropolitan areas or public transport – saving you money on transportation time and costs.
- Free up cash: Some people prefer to invest the money they would pay on a home deposit, fees and interest in other wealth creation solutions and assets.
- No need to pay for upkeep: Renting also means that you’re not held responsible for maintenance issues, such as plumbing, electrical faults and other general household problems. The landlord is responsible for handling these issues and its associated costs.
It’s your choice
When making the decision to buy or rent, take into account all of the mentioned cost and benefits in order to make a decision that best suits your current financial position and future plans.
Useful Links
- Rent or buy calculator:
http://www.maketherightmove.com.au - Renting vs buying for youths:
http://www.youthcentral.vic.gov.au/Housing+&+Accommodation/Buying+a+property/Buy+or+rent/
Tags: buy, buy first home, first home buyer, rent, rent vs buy, renter, renting
