The renting versus buying debate has raged on for years. Many people feel that its unaffordable to buy a home, so they prefer to rent, while others think renting is a waste of money and would prefer to buy. The best option for you, however, depends on your circumstances and on where you choose to live. Lets look at the pros and cons of renting and buying a home in greater detail.
Is Renting Really Throwing Money Away?
Sure renting can be classified as dead money. This is because youre basically paying off someone elses mortgage or providing them with an income. Therefore, your money is not working for you, but its working for someone else.
However, paying off a home loan can be more expensive than renting. So if you find that youre in this situation because of the location that youre renting in, then there is a way that you can make renting work for you. Simply invest your money elsewhere, this will then allow you to grow your wealth and create a better financial future.
You can invest in a number of ways. Firstly, can buy an investment property in a more affordable area, while you rent a property in an area that is more expensive. Over time, your tenant will pay off your investment property mortgage for you. Secondly, you can buy stocks and shares and then watch these grow in value.
The Value in Buying Property
Buying your own home is what many people refer to as the great Australian dream. This is attributed to the fact that when you buy a home youre forcing yourself to save and to build long-term wealth. In addition, youre also developing your own security and controlling your financial decisions.
If youre concerned about the level of financial commitment when buying a home, then one option you should consider is renting out a room in your home to help you cover costs. This way you wont overstretch your budget and youll be able to watch your home appreciate in value.
Weighing-up Whether to Rent or to Buy
The best way for you to decide whether to rent or to buy is to review your current financial circumstances. This can be done by looking at the purchase prices for property youd consider buying in areas that you like. Research the market. Look at sales data and go to open inspections. Theres a massive difference between thinking you can afford to buy a home and knowing you can afford to buy a home.
Next, look at the costs of home ownership and compare these to renting, before you make a decision to rent or to buy. Its also important for you to consider your lifestyle and flexibility. If you plan on moving for work or study, or travelling around Australia or overseas, then it may be a good idea for you to rent rather than to buy.
To calculate the costs of buying a home and your borrowing power use a stamp duty and borrowing power calculator. These can be found online. There are also rent verses buy calculators available that will allow you to gauge whether youd be better off renting or buying.
Buying Your Own Home Creates Opportunities
There are a number of advantages to buying a home. These are as follows:
1. Buying and investment opportunities Buying a home typically allows you to create wealth. Firstly, the value of the property usually increases over the term of your loan. For instance, if you buy a home for $320,000 in 2016 by 2026 this may be worth $420,000. Therefore, your home is an appreciating asset that can increase in value overtime.
As your home increases in value it generates what is called ‘equity’. Equity is the difference between the value of your home at the current market rate and the amount you owe on your home. So lets say that you bought your home for $320,000 and 12 years later your home is valued at $520,000. Over the 12 years, youve reduced your mortgage from $260,000, down to $90,000. Therefore, the amount of equity you have in your home is its current market value of $520,000, less what you owe on your mortgage being $90,000, which equates to $430,000.
This equity can then be used to secure the purchase of investment property, which will allow you to increase your wealth.
2. Buying increases your financial security While youre able to earn an income you have financial security, but if your ability to earn is taken away from you due to an accident, illness or old age, then you need an alternative means to provide you with an income. For many people owning their home gives them peace-of-mind that if they need to they can sell this asset and they will have enough money to live on. The same cannot be said of renting.
3. If you want to make changes to the property you can If youre renting, then you cannot make any changes to the property without asking your landlord for permission. Whereas if you buy your own home, you can paint and decorate the property as you wish and you can also renovate or put in gardens. This will also increase the value of your property.
Are you looking to stop renting and buy a home? Then contact eChoice today, we can help YOU find an affordable home loan.
Written by eChoice
Since 1998, eChoice has helped more than 50,000 Australians secure a home loan through its network of over 25 lenders and hundreds of loans. Best of all our service is cost and obligation free!