Making the decision to rent or buy a home can sometimes be difficult, especially as it is mostly dependent upon your personal situation, although the market also has some influence. There are many variables that you need to assess to decide whether or not it makes more sense for you to rent or buy when you search for your new home.
The Cost of Owning vs. Renting a Home
In addition to your down payment and mortgage, there are many other upfront costs incurred when you purchase a house, such as transfer/stamp duty. When it comes time to budget your monthly costs, you have to remember to include more than the mortgage – you also need to budget for your property taxes, any strata fees, and utilities. You also will have maintenance costs and repairs for which you will have to pay. You will also need to buy building insurance, in addition to just contents insurance.
Alternatively, renting has lower upfront costs. You will need to pay an upfront bond, which typically equates to 4 weeks of rent. You will then have to pay your monthly rent, which may or may not cover include utilities. You often will not have to pay for any maintenance costs or repairs, as this falls to the owner of the property. Therefore, when you decide whether or not it is more affordable (or at least comparable) to rent compared to buying, you want to be sure to compare the upfront costs and the monthly costs to see what it will look like with your current financial situation.
The Benefits of Home Ownership
Home ownership does offer some benefits over renting, the most important of which is that you actually own the property. The money you pay towards the principal is an investment towards property that you can sell in the future, hopefully for a profit. This provides you with equity, collateral for any future loans, as well as something to fall back on if you run into financial problems. Owning a home also provides you with security, as well as freedom to make any changes you want to the property.
It can be a smart move to continue to rent if the property market is going backwards fast in values, as we have seen in other countries around the world. Many buyers wait until they start to see signs of a recovery before they decide to buy. Only problem with that approach is getting your timing right is difficult and you can miss some good capital growth as you wait for the signs of prices rising to be evident.
How to Decide Whether to Rent or Buy
When you make the decision to rent or buy, you should look at your financial situation to see how much money you can afford in upfront costs and monthly bills. Then, you should think about how long you plan to stay in the property. Renting makes more sense when you need flexibility, especially if you are unsure about your income or career. However, you are left with no real control or security about the rent or how long you can stay beyond your current lease agreement. If you can afford it, owning a home typically makes more sense if you plan to stay in a location for more than five to seven years or you can always plan to rent your home out making it an investment property.
Each individual situation determines whether or not it makes more sense to own or rent. Therefore, you will have to go over the finances and unique considerations for your situation to determine whether or not you should rent or buy your home.