August 11, 2017
I am often asked whether it is better to rent or buy a home. So as with many other financial questions, the answer is ‘It depends!’
If you are considering renting here are some factors to think about:
Your rent is a regular payment which may increase annually. It is for a fixed term – usually 12 months – and if you break the lease you will be charged break costs until the property is re-tenanted. At the end of your lease either you or the landlord can decide not to renew the lease – in which case you will be moving on. As most utilities are connected by the tenant, you will then have the cost of cancelling and reconnecting utilities at your next house. Don’t forget you’ll also need a 4-6 week bond to be paid in addition to the first 2 weeks rent. This bond will be refunded after your final inspection but it may not be in time for you to use it for your next property.
Council rates, repairs and maintenance of a leased property are at the cost of the landlord – unless otherwise negotiated. Water rates and usage are usually negotiated between the tenant and the landlord. A good landlord will upkeep the property to a good standard but they are not usually going to improve the property (new kitchen or bathroom) without the cost being passed on to the tenant via increased weekly rent. If you are the tenant you are stuck with the awkward layout, dated built-ins and power hungry heating and cooling.
Pets can be a sticking point. Some landlords will allow pets on negotiation but usually with an increased bond. Quarterly inspections are conducted by the landlord or property manager and if you have a pet, they will be very strict on the cleanliness of the house and garden.
It is the responsibility of the landlord to insure the property but it is the responsibility of the tenant to hold insurance for their personal contents of the home and garage/shed, etc.
On the up side, rent may be less than a mortgage and it may give you the opportunity to live in a home in an area where you would not be able to afford to buy.
Things to consider when looking to buy a home:
You will still have regular payments that you need to make to a financial institution. These may be fixed or variable and may go up or down over time. Usually a deposit of 10-15% is required to secure a loan.
All of the costs associated with the property are on your shoulders – the rates, utilities, insurances, repairs and maintenance but you can decide what to do with the property. You can redo the kitchen or re-landscape the yard to your own taste. You can increase the value of your asset through ‘sweat equity’!
Providing you keep paying your loan back, you are the only one who can decide to move from the property. This gives you long term security but the costs and time involved in selling and moving can be expensive.
One of the best reasons to buy rather than rent is to build up equity. As you pay down the loan on the home, more of the home belongs to you and not the financial institution. You can also choose to pay more towards your loan and have the equity in your home increase faster. This equity is like enforced savings. It can be used to buy other properties so you can be a landlord or used as the deposit for your next home.
Is the Great Australian Dream in your future?