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Why haven't you bought a house? Are you still renting? Rent money is dead money! As a renter, you might already be tired of getting such questions repeatedly. This is because of the considerable sum of money you spend every month just to have a roof over your head.
The necessity of having a roof over your head cannot be overemphasised. However, if you were to buy a house, you're likely to save additional money in the long run compared to when you pay rent. This is the common argument that most people peddle, especially parents.
However, it's important to note that most of these parents bought their homes pre-boom era. For young people these days, buying property early enough is becoming increasingly difficult. Hence, they end up going through a long period of paying rent. Should renters buy a house? Is owning a house better than renting? Keep reading to find out more.
Benefits And Disadvantages Of Renting
Renting is not for everyone, and it often means you have to live with weird flatmates and be at the mercy of your landlord. Sometimes, you won't be allowed to make major changes to the building, such as drilling holes in the house's walls. Despite that, you're not bound by a mortgage, which allows you to enjoy some form of freedom that a homeowner can't enjoy.
Benefits of renting
Here are some top benefits of renting:
- More Affordable: Renting a house is generally more affordable when compared with paying a mortgage. However, the amount of money you pay for rent depends on the area and other similar factors.
- Less Upkeep: As a renter, you don't need to worry about the property's upkeep. This is because your landlord is often responsible for keeping things tidy and clean in the building, corporate fees, home insurance, maintenance, and repairs. As a renter, you don't need to worry about all these expenses.
- More Flexibility: As a renter, you have more flexibility, and you can always move house whenever you want to. You can't just pack up and leave a home you bought, but you can do that if you're a renter.
Disadvantages of renting
Here are some of the disadvantages of renting:
- Lack of Security and Stability: Renting puts you at the mercy of landlords, exposing you to many unpredictable events. For example, faulty plumbing may never get fixed, you can't keep pets, and rent can unexpectedly increase. There's also the possibility of the landlord selling the property; you'll need to pack up and move somewhere else.
- Limited Freedom: You don't have much freedom when renting a house. For example, you may be unable to change the paint or drill holes in the walls. You might need to use other options like removable wallpaper, rugs, or self-adhesive hooks.
- No Investment Potential: Even though you will have to pay a mortgage after buying a house, you'll eventually pay it off. That's not the case with a rental, as rental payments are permanent. Rental fees won't make you the homeowner, no matter how long you pay rent, and this is why many regard rent as dead money.
Benefits And Disadvantages Of Buying A Home
For most people, the Great Australian Dream means owning land with a house. However, it's important to note that buying a home is not for everyone. Here are the benefits and disadvantages of buying a home.
Benefits of buying a home
- Stability and Freedom: Buying a house offers the security and freedom that most renters dream of. You won't be worried about an increase in rental fees or the landlord kicking you out because they want to sell. Mortgage repayments don't fluctuate dramatically like rent. Also, you have control over repayment, and the options available are split, variable, or fixed loans.
- Rise in House Prices Overtime: The value may increase over time when you buy a home. However, this depends on the local property market and the property type. Also, a rise in market prices increases the value of your asset. It's worth noting that the opposite can also occur.
Disadvantages of buying a home
- Expensive: Buying a home is generally more expensive than renting one. Sometimes, the mortgage repayment may differ from what you pay for rent. However, buying a home means you'll have to consider factors like council rates, corporate fees, and maintenance. These are several expenses that a renter won't have to worry about.
- Your Home May Decrease in Value: Even though the value of your property can increase, the market can also go down, causing the value of your property to decrease. In general, a home is considered a financial asset. However, making bad renovation decisions can cause the value of your home to go down.
Essential Things To Consider Before You Rent Or Buy
Now that you understand the benefits and disadvantages of renting or buying a property, here are vital things to consider before you rent or buy:
Can you commit?
The initial question to ask is whether you can commit to a home loan. It can be challenging to gather so much money in your savings accounts, let alone opt for a repayment plan that could last up to 30 years.
You must determine whether you can shoulder the wheel on insurance premiums, council rates, loan repayments, repair costs, and maintenance. Nonetheless, committing to owning and buying a property can yield a better outcome than renting a property.
How well do you understand investing?
If you're considering buying, you need to determine your level of understanding when it comes to other investment options. For example, different asset classes like commercial property, exchange-traded funds, Australian shares, or international shares.
Most people don't know much about these investment options. Buying a home can be complicated, especially after the initial purchase. However, it's easy to build your financial position with time.
Do you have a long-term view?
Another thing you need to consider is your long-term view. When you buy a property for the long term, you can easily enjoy the benefits of a capital gain in the value of the property. On the other hand, a short-term property purchase will only leave you at the mercy of multiple factors.
Are you motivated by the stick or the carrot?
This is similar to your ability to commit, as mentioned earlier. However, this is from the angle of your motivation. Basically, the stick refers to the punishing or punitive concept. For some, the motivating factor is the pain of a failed mortgage, which arises when you don't make necessary repayments.
People with this personality are motivated to make payments because they don't want a failed mortgage. With that said, buying a house will likely be an excellent option to consider if the stick is a motivating factor for you.
Are you a deal hound?
The last question to ask yourself is how well you can find a deal that benefits you. This is a vital question to ask because, in addition to buying your house at a reasonable price, you also need to be able to find a good and profitable home loan.
You'd know you got a good deal when you don't pay more than the property's actual worth, and it presents a good potential for capital growth. Another thing worth noting is that a great property purchase allows you to secure a price that offers more capital gain at the beginning of your ownership.
For example, you get the property at a price that is lower than the worth of the property because of some unforeseen circumstances from the seller. These are the key things to consider when renting or buying a property. Also, it's worth noting that there are other ways to build wealth and secure your financial future.
Get Building Inspections Before Buying
Paying rent doesn't mean you are wasting money. The main difference between buying and renting is that renters buy flexibility while homeowners buy security. It all depends on your personal preferences.
If you decide to buy a house, be sure to get a professional pre-purchase building inspection done so you can detect any potential issues with the property before you commit a long-term deposit to it.