Should i Buy a House or should i rent

| January 25, 2015

The popular aussie  dream  has always been to own your dream home, which is still very relevant  and the aspiration of many Australian that don’t own their own houses today – in opposition to renting a home. But  as times passes and property gets pricier and banks get stricter with their lending rules  that dream is becoming more and more  out of  reach for some Australians.

Is Renting or Buying a house beneficial

However there is a small minority of people that do believe  in renting even though they can afford  to buy their own house, which raises the question is it wise  to rent  rather than buy you dream home ?

Renting vs. Buying a house

Another type renting that’s still not caught on in Australia is owner leasing of properties, the buyer gets a long term lease for a property for a fixed term and then then  when the long term leases expires, the buyer has the option to buy the property.  These  sort of leases are more popular in  the US , CANADA and EUROPE. This in some circumstances can have a tax advantage .depending on the current Property and tax rules.

The question of  whether renting a house or buying a house is beneficial can mainly be answered by  each person doing  the maths on their ongoing expenses to see in which situation they will be better off. Basically its doing a calculation to calculate if its interest payments  that is money down the drain or rent payments that is money down the drain.

Contrary to popular belief  “ that rent money is dead money” or “rent money is money down the drain” it is quite actually the opposite in many circumstances. The fact that “rent money is money down the drain isn’t true” can be proved by the fact that mortgage payments on the house can be higher than the rent, even before capital (principal) repayments are made. And at the top end of houses and apartments, the interest rates can be more than double rent rates.

In order to understand how more repayments are being made on the mortgage in comparison to rent , you will also need to understand the  “difference between the principal and interest repayments in the mortgage or loan” . In addition to repaying the principal, the borrower is obligated to make interest payments to the lender

Principal – The amount borrowed or the amount still owed on a loan, separate from interest.

Interest Repayments –  Interest is essentially a rental, or leasing charge to the borrower, for the asset’s use. The amount basically is a percentage of the  principal.

Investors often get a Interest only loan  so that  they can benefit from lower repayments and get a tax advantage. This option is not available mostly  to owner occupiers or people buying a home to live in.

Costs & Expenses for Renting vs. Buying a house

Coming back to the “Renting  vs Buying house” argument , one can clearly make  a far better return on the money used  as  capital repayments for a house loan  by investing that money in shares or your own super. This could be quite profitable  and worthy if you are good at investing money and with the share market recovering quicker than housing market recoveries sometimes this is a better option.

perth moving and living in WA perth australia

The other expenses that are often overlooked  when calculating the difference in expenses between renting and  buying are also expenses like, TRANSFER COSTS ( real estate agent fees , conveyance fees , stamp duty ), Mortgage insurance fee ( if you cant afford a 20% deposit) , Ongoing Maintenance and repairs costs , Ongoing rates payments and home and or contents insurance costs. Over years these additional costs can certainly be added up to become a massive expense that could be used elsewhere or for investment.

In addition to these factors , many property analysts say the the Australian property market is overvalued even with the fall in price values due to the GFC, so there is possibly  less of a chance of property gains ( or your property value increasing in a hurry in the shorter term period)  to get gains from your property over renting).

Apart from all the financial differences between Home Ownership and Renting, most Australians like the idea of owning their own house rather than renting. Home owner ship definitely gives many  a person  the satisfaction of owning their own little place  which can be invaluable to that person. If you are a bad saver of money , buying a home is often also a good compulsory saving in a investment that can be good in the longer term and also save you rent payments  when you are on the pension or retired.

Concluding  the argument  between renting or buying your house ,  a financial savvy person who  is more money minded  than actually being more satisfied and happy owning their own house, can make use of the benefits  of renting  at the expense of possibly some soul satisfaction.

REIA  Fact sheets – To assist you further, the REIA have developed a series of fact sheets on renting and leasing.  To view the fact sheet for tenants –Renting a Property, click here.   To view the fact sheet for lessors – Renting a Property, click here.

[PDF] Rental properties 2011 – Guide for rental property owners …. Rental properties 2011 will help you, as anowner of rental rental property owner an assessable recoupment under

Pros and cons of buying vs Renting

Understanding your mortgage by Citibank – http://www.citibank.com.au/aus/banking/pdf/11287_UnderstandMortgageDL.pdf

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Category: 2012, Dream home, Featured, Interest rate hike, Mortgage rates

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Property man writes articles related to property , stock market and finance. if you like what you see do bookmark the blog and leave me a comment

Comments (1)

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  1. ME says:

    “a financial savvy person who is more money minded than actually being more satisfied and happy owning their own house, can make use of the benefits of renting at the expense of possibly some soul satisfaction.”

    OOOORRR

    a person who is more concerned with living life than drowning in mortgage payments that the country is constantly complaining about, can spend their lives doing what they actually want.

    Do I need to mention the countless studies on people who rent having more cash on hand/feeling less pressured financially than people who own homes?

    Talk about a bias article. ffs.

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