Renting v’s Buying

Purchasing your first home is an exciting step to make, but it’s also a major commitment.

Home ownership and renting each have their advantages and disadvantages. The market for both has changed significantly since your parents, friends, or even siblings were in the same situation. When considering the advantages and disadvantages of each, your own personal circumstances, future goals, and current financial situation should guide your decision.

Renting vs Buying

Market Fluctuations

If you’re a tenant, your landlord is more likely to increase the rent if the market goes up. However, if the market dips, it’s unlikely that your landlord will reduce your rent.

When you’re ready to sell your home, you can make a larger profit if the value of your property rises before you sell. Alternatively, you could use this equity to invest in another property.

Home Maintenance Costs & Fees

If you’re renting, you have little control over the building maintenance. As an owner, you choose what repairs and improvements you want to make, when to make them and how much they should cost.

Understand Rent and Repayments

Rent is fixed for the term of the lease—usually six to twelve months. However, your landlord can change your rent when the lease is renewed. Rent may be less than mortgage payments, especially if you are sharing a home.

When you choose a variable rate home loan, your home loan repayments can fluctuate – they can go up and down with interest rate changes. However, a fixed-rate home loan could give you more certainty. While it’s true that you might be paying more in repayments than if you were renting, you’re building equity in an asset.

Property Ownership

When you rent a property, you are paying off the mortgage on the landlord’s investment. As a renter, you also have little certainty beyond the term of your rental agreement. You may be asked to move within a few weeks’ notice, or you can move with little notice if there is an opportunity for you to relocate or find a better place to live.

Homeowners may gain equity in their properties, which they may use to purchase another home in the future. As long as they make payments on their house loans, the property remains theirs to live in for as long as they want it. Renting is typically a less permanent option than owning a home; moving from one place to another can take longer than simply packing up once and for all and making a fresh start somewhere else.

Home Renovations

When renting, you generally have limited ability to customize the property. If you buy a home, you can generally do whatever you want with the décor (subject to council/strata approval). Any improvements will enhance your lifestyle and increase your home’s value.

While renting, you can avoid some of the ongoing expenses associated with running a property. Running a household is expensive — there are utility bills, council rates and maintenance costs . There are also other costs associated with buying a home, like stamp duty and interest on your repayments.

Consider using these savings to build your down payment. A good tip is to put aside the amount of money you’d be spending on these expenses each month. This could help you prepare for the costs of home ownership, as you have to do some research to calculate your daily expenses.

Pay your bills on time and save extra money when you can. Lenders like to see that you can make regular rental payments, as well as putting aside additional savings.

Want to know more about buying your first home? You’re local My LMI Group broker can help you prepare for the next steps.