How do you realise the best property strategy in today’s market?
It’s the age-old question: do I rent or buy?
It does not always have a black and white answer.
Moneyhound explores the pros and cons for each to assist an informed decision.
Rent or buy to suit your situation
There are positive and negative aspects of both property strategies. That’s why it’s a matter of weighing up your future goals, needs and current financial situation to determine if buying or renting is the better dwelling solution for you.
One must also take into consideration that Sydney, Melbourne and Perth are among some of the world’s most expensive cities. In fact, Sydney and Melbourne are the world’s seventh and eight most expensive cities to live in, according to the Economist Intelligent Unit’s 2012 Cost of Living index.
Living costs are clearly impacting the way Australians are living. Australians for Affordable Housing state that one in 10 Australian households are currently in housing stress, paying more than 30 per cent of their income in housing costs, since both house and rental prices have risen well above inflation.
However, prospective home buyers face more challenges beyond everyday expenses. Their home-owning dreams are dependent upon interest rates, house prices and home loan affordability and availability, plus the add-on costs to home ownership like stamp duty.
Do you truly have a realistic chance of owning a home in Australia today? Can you survive paying increasing weekly rent all your life?
If you decide not to buy, you will rent until you die
Buying is tough, but it certainly has its perks. The major benefits are being able to own your own home, change it’s features to suit you and live stress free knowing that if you loose your income you still have somewhere to live.
You also won’t be a slave to a landlord and can increase your net worth, provided that property price value increases. Furthermore, if your investment grows in the long term, you’re presented with the opportunity to ‘trade up’ for a better home if you desire.
More from Moneyhound: Best apps for house hunting
Rent money is dead money
Too many people regard rent as dead money that’s going nowhere – money that only pays off the landlord’s mortgage. This isn’t the case. What you’re getting for your rent is a safe home to live in with access to utilities.
If you’re wise, you can use renting as an opportunity to save a deposit in order to buy later. Renting is also great for paying for accommodation that is much cheaper up front. Just be certain that you don’t rent a more expensive home than what you can afford, or spend the money you’re saving from investing on lifestyle items. This is when money goes down the drain.
Or, whilst you rent your savings can be used to invest in other higher yielding assets such as stocks and shares.
Related: 10 Ways to lower your rent
It is important to note that if you rent forever and never buy a property, you’ll face a life-long battle of dealing with the ever-increasing cost of living and rental hikes. In that respect, renting can prove to be very costly, especially considering your long-term financial security and having no property assets.
Buying is great if you can afford to invest in an area that you genuinely want to live in. It is also a leap of faith, with buyers hopeful that their property value appreciates.
Renting, on the other hand, is an ideal platform for saving the deposit necessary to step into the housing market. It is also cheaper in the short term than buying and provides the flexibility to move around, relocate, live interstate or abroad. Further, you can use the unused principal to invest in other more profitable assets.
There is no solid answer for one being better than the other. It all depends on your income and your personal circumstances.