Should I Rent or Buy?
While the Australian economy was significantly affected by COVID for the past two years, the residential property market continued to boom, with many families and first-home buyers taking advantage of affordable pricing and low mortgage rates.
However, interest rates started to rise when pandemic restrictions were eased and the economy gradually recovered. From January to August 2022, interest rates increased from 0.1% to 1.85%.
And with the cash rate now at 2.6%, you may be asking: Should I rent or buy?
Your decision to either rent or buy today depends on a few factors, such as your financial position, current lifestyle and investment goals.
That being said, renting and buying a home both come with advantages and disadvantages.
To help you arrive at a decision, consider the following:
Renting a home
If you lack the financial resources to make the necessary down payment or prefer to have the freedom to move homes quickly when you want or need to, renting a home can be an attractive option.
Renting also comes with the following pros and cons:
Pros
- You have more money in the short term, as you won’t be paying for a mortgage.
- You enjoy the flexibility of upsizing or downsizing and living anywhere you want.
- You’re not required to spend on property taxes, as well as maintenance and repair costs.
- You can budget easily, as you only need to pay a fixed rental amount.
Cons
- Renting a house or apartment offers no investment potential, as you’re paying to live in someone else’s property.
- You have limited freedom to make modifications to your rented home.
- It does not provide any tax benefits.
- You can get evicted anytime the property owner decides to sell the building or use it for their own purposes.
Buying a home
If you can afford to buy a property to live in and find one that ticks all the boxes on your list, then home ownership can be quite beneficial indeed.
But before committing and signing on the dotted line, consider the following pros and cons of buying a home first:
Pros
- Since you own the property, you can renovate or make changes to it as you see fit.
- With the right property, you can build wealth through capital appreciation or rental income (if you decide to rent out your property in its entirety or in part).
- It provides a certain level of financial and personal security.
Cons
- For the most part, townhouses, condos and apartments are subject to body corporate restrictions.
- The risk of foreclosure is present if you start missing mortgage payments.
- Purchasing a property comes with substantial upfront costs, such as the down payment, stamp duty, legal fees, etc.
The choice is yours
Deciding to rent or buy isn’t so easy.
However, by considering the pros and cons of each and assessing your financial standing, lifestyle and investment goals, you may arrive at an informed decision.
Better yet, consult your financial advisor to have a better understanding of the current market situation and your property prospects.
If this article has inspired you to think about your own unique situation and, more importantly, what you and your family are going through right now, please contact your advice professional.
(Feedsy Exclusive)
