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Rent Vs. Buy
Buying a house or owning real estate has been a part of the great Aussie dream for a long time and for many excellent reasons. However, it has never been a one-size-fits-all solution for everyone due to personal preferences. Both renting and buying a house have distinct advantages and disadvantages, and the combination that works best for you may differ significantly from that of another.
Furthermore, the ideal option for you may vary over time. In this post, you will get a chance to understand whether purchasing a house or renting one is a better option for you right now. Please continue reading.
The Benefits Of Renting A House
Renting a house is an excellent choice if you are unsure or hesitant to embark on the relatively lengthy home ownership route. Renting provides one with some financial independence and flexibility because you are not required to pay for upkeep, a home loan, repairs, house insurance, or property taxes.
Let's get into the various advantages you get to enjoy if you choose to rent over purchasing a house:
Renting a house is usually less expensive than its counterpart, buying. Monthly rental costs tend to be cheaper than mortgage payments, particularly in significant metropolitan areas. As a result, if you choose to rent, it can be a considerable advantage for you, primarily if you are a young professional after a fast-paced lifestyle and career opportunities in the city.
Renting provides more value for your money; if you can pay the rent where you want to live and still have money to put into your savings account each week, you are guaranteed to be much better off. In addition, by renting a house, you will not have mortgage debt and the responsibility it entails.
Renting is a straightforward process
While looking for an empty property might take some time, renting a house is a quick, uncomplicated, and straightforward procedure. You are not required to go through the time-consuming formalities involved with owning a home, such as mortgage applications. Once you've found premises you like, you merely need to chat with the landlord about leasing arrangements, then move in once all that is sorted.
No maintenance expenditures or repair bills
As a property renter, you have an advantage over homeowners as you do not have to pay for upkeep or repair expenditures. Your landlord is responsible for any, and all maintenance and repair expenditures undertaken on their rental property. For instance, if an item in your home stops working or your roof begins to leak, you are not financially responsible for their repair (in most cases).
On the other hand, homeowners are entirely responsible for all repair, maintenance, and renovation costs. These expenses might vary greatly depending on the nature of the repair.
Downsizing and upsizing are easier
You might be moving in with your life partner or might have chosen to work from home and need additional space. In any case, it is typically unusual for one's space requirements to vary regularly.
Regardless, renting is advantageous as it offers flexibility that allows you to readily upsize or downsize your house as circumstances arise. This way, you could easily change your living arrangements to your financial situation, among other reasons.
Access to various amenities and facilities
Another financial advantage of renting vs. purchasing a home is having access to various amenities and facilities that would otherwise be too expensive. Many midscale to affluent apartment complexes are equipped with in-ground pools and fitness centres at no additional cost to renters.
On the other hand, if a homeowner wishes to replicate these amenities, installation and upkeep expenses might go into the thousands of dollars. Condo owners, too, must pay monthly fees to access these services.
There is no land tax
Renters have a clear advantage over homeowners where taxation is concerned as they do not have to pay property taxes. Land tax might be a significant cost for homeowners, and the amount varies by state. Because the responsibility to pay this tax falls on landlords, you are not accountable as a tenant.
Fixed rent amounts
When you sign a lease, the landlord cannot raise the rent before the term expires. You know precisely what you're paying at the end of each month, allowing you to budget effectively, spend your money sensibly, and enjoy the peace of mind you deserve.
Disadvantages Of Renting A House
Although renting allows you to direct your funds to other ventures, it has low equity. In essence, you cannot accumulate equity since the home does not belong to you. Therefore, your landlord will gain equity as property prices rise. While you are economically stagnant, your monthly rent assists the property owner in building equity.
With mortgage payments, the homeowner accumulates equity. The amount of equity in your premises is the amount of your mortgage that has been paid off. As a result, each mortgage payment brings you closer to buying your house and grows your equity. The equity could prove advantageous whether you choose to refinance your loan or sell your home in the future.
Strict rental policies
When you rent a home, you must follow the terms of the rental agreement. This means that you cannot remodel, decorate, or make any alterations to the residence without the property owner's permission.
These conditions are relatively stringent and may limit your comfort. Furthermore, breaking these rules might get you in trouble or even evicted. If you are sick of expensive pet policies, limited decorating options, and all the other community rules that come with renting, it might be time to buy a house.
Moreover, when you purchase a home, you can decide on the community you live in. Therefore, whether you are seeking LGBTQ-friendly communities, areas with engaging educational options that meet your children's requirements, or a dog-friendly setting for your family's furry members, the choice is yours.
The lack of rent stability is another downside of renting a house or apartment. Typically, leases are renewed every 6-15 months, with a potential increase in rent each time. A mortgage will have lengths ranging from around 10 to 30 years. If you pick a fixed-rate mortgage, you will pay fixed monthly payments until you pay off your mortgage or refinance for a new rate and term.
No financial incentives
Depending on where you dwell, you may be eligible for several financial incentives when purchasing a house. Homeowners may benefit from tax breaks, incentives for energy efficiency, and more accessible financing access. Renting a property may help you establish your credit; however, it has no financial benefits.
Benefits Of Owning A House
Owning a house in Australia seems to be a popular and wise investment these days. Here are some of the advantages of purchasing and owning a property in Australia:
Tax breaks for first-time home buyers
The government makes the process more manageable if you have never purchased a property in Australia. First-time homebuyers are eligible for an incentive of up to thousands of dollars. Therefore, you will have a significant chunk of the cost of your new house paid for right away.
In addition, new homeowners may be eligible for an exemption from payment of some or all the stamp duty. Stamp duty is the tax imposed by the government on certain purchases, such as real estate and automobiles. As a first-time home buyer, you will be eligible for a deduction covering this tax's majority, if not all.
Owning your own home provides you with security in the future since you will have a footing on the property ladder and will possess it as an asset. When you rent a home, you have no idea how long you will be able to stay there.
You might only be able to acquire a lease for six months before needing to move out, finding yourself in a situation where you are continuously looking for a new place to live. In addition, the property owner might also decide to sell, forcing you to vacate the residence sooner, or urgent repairs might be necessary, forcing you as a tenant to leave.
If you want to stay in a neighbourhood for at least five years or more, it makes sense to buy a home since it provides stability and can save you quite some money on relocation fees. Moreover, you don't want to continue paying rent once you retire. Instead, you want to be able to own your house mortgage-free and enjoy the peace that comes with homeownership. The earlier you buy a home, the easier it is.
Many individuals consider renting to be a waste of money, considering the amount people spend on renting a house in one year alone. That money could otherwise go towards a down payment on a house. Therefore, instead of renting and helping to pay off someone else's property, you could use that money to purchase your own home and benefit from capital gains.
Because house prices tend to double in value every ten years or so, this should be viewed as a long-term investment that should be kept for at least ten years to enjoy the benefits. This, of course, is based on your property and the area it is situated in.
If you buy a house to live in as your primary place of residence, you are excused from paying capital gains tax when you sell the home. However, keep in mind that if you haven't lived on the property for a while, you won't be able to claim for those times.
With so many advantages to house ownership, it makes sense to purchase your own house. It not only provides you with security for the now and future as mentioned before, but it also makes financial sense as the opportunity for profit is available. However, as with any significant investment, you should consult with an expert to ensure that this is the right moment to buy and that you have adequate cash available.
Steps For Purchasing A House In Australia
Purchasing a house is one of the most challenging yet life-changing choices ever. To receive the most acceptable bargain, you must consider a variety of things. These will be included in the step-by-step guide provided below on how to buy your ideal house in Australia:
Examine your current situation
Before taking any moves in this direction, assess your readiness to purchase a home. First, you must assess your borrowing capacity and the type of home you can afford. To do so, consider the number of dependents you are responsible for, employment security, and lifestyle. With employment security, most Australian lenders prefer people with at least 12 months of experience in their current position since they provide minimal risk to them.
Examine your financial situation
Examine your existing financial condition and determine your urgent, short-term, and long-term objectives. Begin by setting aside enough money to accomplish your financial goals so that you can locate free money to invest in the property.
Because a mortgage is a major financial commitment, carefully consider how much you can afford to spend on monthly mortgage payments. Mortgage calculators that determine the mortgage amount based on the following criteria are freely accessible online:
- Existing financial obligations and debts
- Your income
- Home deposit and also any existing savings
- Upfront and relocating expenses
- Credit report and credit score
- Costs of purchasing a home
You could also get a copy of your credit report to confirm that all your debts are paid off. It is advisable to reduce your credit card limit to qualify for a higher loan. An expert accountant can aid you in assessing your finances and developing a reasonable budget.
Choose the type of property you want
Many considerations must be considered while choosing the best house to invest in. Finding the ideal home requires striking a balance between your lifestyle and the cost of the house. Consider the following:
- Property size
- Property type: is it a house or unit?
- Internal aspects such as layout, fixtures, decor, and outdoor area
- Community and environment
- Structural integrity
- Public transportation accessibility
- Location (proximity to schools, shops, services, hospitals, etc.)
- Prospects for capital growth
Compare home loans
After deciding on a house, you must obtain the best home or personal loan to help you achieve your property goals. Borrowers looking for a competitive house loan should become acquainted with the various home loans accessible to them.
Several Australian mortgage companies provide competitive interest rates and product features on their house loans. Compare loans based on the following criteria to find the best one:
- The interest rate: Choose an option with a low-interest rate to help you maximise your savings.
- The term of the loan: To save money, consider a house loan with a shorter repayment period over one with a more extended repayment period.
- Fees: Use application costs, discharge fees, and recurring fees to compare house loans. A home loan with fewer fees might help you save money on your mortgage.
- Features: Many loan lending companies have attractive features aimed at helping individuals save money. Consider the loan repayment penalty and characteristics like redraw capabilities, split loans, minimum regular mortgage repayments, wage crediting, and bundled discounts.
Have your loan pre-approved
Knowing your budget range is useful even before you start looking for a property. This pre-approval procedure is carried out in three steps:
- Gather all of the relevant documentation for the lender, such as a credit report, income statements, investment information, and savings account information.
- Undergo a loan interview
- Verify paperwork and obtain loan approval
Following acceptance, you may be given a 'pre-approval certificate' or a 'home loan guarantee certificate.' Loan approvals are only valid for about six to twelve months. Therefore, if your pre-approval period ends, you may request an extension or reapply for the loan approval procedure.
Zero-in to the property you want
Finding your dream house is a fascinating experience. However, you must adhere to your budget and analysis while on this path. Make practical judgments rather than emotional ones. Attending open houses and auctions is essential when purchasing a home in Australia for the first time, as it gives you a chance to find your ideal place.
If you choose to buy a house at auction, you may be required to pay a deposit of around 10% of the total purchase price right away. However, you should know that auction purchases have no cooling-off time. When you buy a home privately, the selling agreement includes the deposit amount and timetable for payment.
Make an offer
When you are ready to buy the house, you can make the seller an unconditional or conditional offer. Inform the lender that you have located the ideal property and submit an application to conclude your house loan.
Get ready for the purchase
When you've found the house that fits your vision, it's time to undertake a property appraisal to assist you in determining the exact price to offer. You will then exchange contracts and pay the deposit using your term deposits or loans once you have selected the correct pricing.
The seller will include the following terms in the sale agreement:
- Terms and conditions
- Special offers in the sale
- Settlement date
- Names of the parties engaged in the transaction
- The property's address
- Purchase price
The property seller will prepare a contract of sale. Before signing a contract, a buyer should do a property inspection, speak with the seller, and seek a legal expert's advice.
Conduct a building inspection
It's important to have an expert building inspector undertake a building and pest inspection on the house. When completing the building inspection, the inspector should look for the following things:
- Problems with structure
- Damp Floor
- Faulty wiring
- Drainage and plumbing problems
- Proper window and door installation
- Ceilings that are sagging
- Repair and maintenance costs
- Water flows from faucets
- Presence of termites and other pests
If you discover any significant problems with the property, you have the right to cancel the agreement within the cooling-off period.
Prepare to move in
After exchanging sale contracts, you will be on your way to the settlement stage. This is the process of transferring the property title into your name, marking the beginning of your mortgage duration. The solicitor/conveyancer closes the deal with the seller and loan lender.
Later on, you will receive the keys to your new house. Stamp duty expenses and legal and conveyancing fees are all part of the settlement procedure.
Costs To Expect When Purchasing A House
Once you've chosen to buy a house in Australia, the following step is to assess your financial situation and the potential costs of doing so. Here is a breakdown of the costs you will incur:
Purchasing a home necessitates the preparation of legal documents, including property registration, title transfer, and other legal checks. Therefore, be sure to set aside around $1000 to $3000 to fulfill all the necessary legal requirements.
You must place a down payment of around 10% to 20% to receive a house loan. To avoid needing to pay mortgage insurance, you would need roughly 20%.
Stamp duty tax
The precise amount of this tax is determined by the state where you reside and the property's purchase price.
Home inspection cost
Before you proceed with the house purchase process, it is vital to have a professional building inspector undertake a complete examination of the house for any pest infestation, structural defects, and so on. Having the house inspected in advance provides you with peace of mind and confidence that the property is pest-free and structurally sound.
Fees for FIRB (Foreign Investment Review Board) clearance
The FIRB clearance fee is determined by the property's valuation and your citizenship status, i.e., whether you are a temporary resident or an international investor without an Australian visa.
Insurance and financing expenses
When submitting a mortgage application, Pay the LMI (Lenders Mortgage Insurance) charge if you borrow more than 80% of the house's purchase price.
These include continued mortgage payments, cost shifting, payment of utility bills, strata charges, land taxation, water and council rates, insurance for your home and building, fees for the body corporate, property management fees, mortgage defence insurance, and the cost for all necessary repairs and maintenance of your new home.
Renting Vs. Owning: Which One Suits You?
You might be considering making your first home purchase but are unsure of how to determine which option is better for you. This might leave you thinking that you would be better off continuing to rent. In the end, the solution depends on several variables, as this article covers.
The best choice for you depends on more than just the purchasing cost; it also depends on your comfort level and personal goals. The choice to become a homeowner ultimately rests with you. This is to say that only you can determine what option works best for you and choose it.
Luckily, you can turn to the advice provided in this article to help in decision-making. If you are prepared to buy or rent a home for your family, simply contact a qualified rental or pre-purchase building inspector to help you navigate the process and ensure a positive outcome.