Many people are feeling locked out of the housing market as prices in the areas they want to live become increasingly unaffordable. So working out whether to buy now to get on the property ladder, wait and continue renting, or buy and rent, is an important decision. Let’s go through some of the pros and cons of your options to help you make an informed decision.
RENTING PROS:
- Frees up your savings as you don’t have to spend it on your deposit and the costs associated with buy a house. It mightn’t be the right time in your life to have all your money going towards a mortgage. Your savings can be used for travel, study or lifestyle.
- You have the flexibility of relocating when your lease expires and not have to worry about the associated costs of buying and selling.
- Allows you to put your savings to work by investing. You can start that business you’ve always dreamt about or buy an investment property and watch it grow.
RENTING CONS:
- Depending on where you live, renting may not always be better than paying a mortgage. Over time as rents increase catching up to mortgage repayments, it is a great advantage to pay that bit extra to own and pay off your home.
- Renting might not encourage you to save. Having a mortgage can force you to be more discipline with your money, as the more savings you pump in to the loan, the more money you will save on bank interest.
BUYING PROS:
- You have the stability and certainty to stay and live as long as you wish without the hassles of a landlord. You also have the freedom to make your home your own by decorating and renovating.
- House prices generally increase over time. Keeping in mind that home ownership is a long-term investment strategy. So owning an asset that will slowly grow in value is very appealing.
- As your home grows in value and as you pay off your loan, the equity in your home is building. You may be able to use this equity and put it to work in an investment.
BUYING CONS:
- Bank interest and fees can be significant over the life of the loan. Being prepared and budgeting for interest rate hikes is important.
- There is an opportunity cost with having all your money tied up in your home. If you were renting you could spend or invest your money elsewhere.
- Buying and selling your home isn’t cheap. It will cost you about 6% of the purchase price to buy, this covers your stamp duty, government fees, conveyancing costs and loan establishment fees. Selling your home will cost you about 4% of the sale price to cover agent’s fees and advertising. Don’t forget about the ongoing costs of ownership including council rates, repairs, depreciation, body corporate fees, water and insurance costs.
WHY NOT RENT AND BUY — BECOME A RENTING INVESTOR
More and more young couples and families are discovering that the key to achieving their dream of home ownership is to take an alternative approach – rent where you want/need to live, and buy an affordable investment grade property and rent it out. This is a well-known strategy called rent-vesting.
PROS:
- Enter the property market sooner and start building wealth as an investor.
- An affordable property will require less of a deposit. You may not have to spend years saving.
- You don’t have to compromise as you won’t be living there and you aren’t buying in your ideal area. You can rent and live close to the city or close to the beach and have your ideal lifestyle. The goal is to buy an affordable investment grade property that can help you save for that dream home you really want.
- Buying several affordable investment properties and renting where you live, can potentially be a way to build wealth quicker than buying one expensive home to live in.
- There are also tax deductions available on investment lending and property expenses that you will be able to access through rent-vesting.
CONS: aside from the cons mentioned above.
- Buying an investment property initially can be hard to comprehend for some people, as purchasing your own home is usually the first step when entering the property market.
- You’ll need to spend time and money to get educated and get the right investment advice (not really a con).
Property investment isn’t for the faint-hearted. Talking to your accountant, financial advisor and investment savvy mortgage broker is not only a critical first step, it’s vital throughout your investment journey. They’ll help you setup and maintain a sound investment structure and strategy to build wealth for your future.
To see if being a renting investor is right for you, contact Your Future First on 03 9362 1458 or email andy@yourfuturefirst.com.au