To celebrate the launch of RentPay, we’re doing the math on renting so you don’t have to. This article forms part of our series, The Ultimate Guide to Paying Your Rent & Winning at Life.
Housing affordability is a hot topic in Australia. Working out whether to jump on the property ladder or continue renting can be confusing. Here’s why renting can put you out on top.
- Renting and buying both have their financial advantages. Owning a home isn’t right for everyone.
- Renters have no maintenance costs or repair bills to worry about, unlike homeowners.
- Renters have lower utility bills, greater flexibility in where they live, and access to amenities such as a pool or gym.
Free up your savings
By choosing the renting life, the biggest thing is not spending your savings on a deposit and all the costs of buying a home. When you rent, you’re freeing up money to spend or invest elsewhere.
Depending on where you invest this money, you could get a greater return on investment than if you bought a house. But think carefully about your investment goals and strategy.
If you’re young, you may not be ready to have all your savings and monthly income going towards a deposit and mortgage. Perhaps studies or travel beckon?
Flexibility and freedom
Yogi or not, most of us know flexibility is a good thing. When you’re a tenant in Australia, you’re free to relocate from home to home and suburb to suburb once your lease expires.
Renting gives you the flexibility to live in a suburb or property that you love but may not be able to afford to buy. So whether you’re renting for a career change or you’re just simply seeking adventure, when your lease expires, the world’s your oyster.
Your house size can change with you
Family composition changes all the time. You might go into renting single and living alone but eventually want to add a partner, pets and some kids into the mix. With that, your housing needs will also change! What’s ideal for a young professional single (hello cute 2×1 with a balcony) is totally different for a family with young teenagers.
A significant benefit of renting is that you can change your housing setup pretty quickly. If your family and income grow, you can always move and increase the size of your home as you need it.
Diversify your investments
No matter whether you’re a first home buyer or a seasoned pro, you’ll know that all your savings will go towards the one asset. That might be fine for some, but do you feel comfortable with most (if not all) of your savings being tied up in a single investment?
When you rent a property, you can use your savings across a broad range of investments (AKA diversifying). This is also a great way to spread out the potential for any risk.
No property maintenance or home costs
Homeownership costs go above and beyond the deposit and loan repayments. Aside from agent fees, advertising, stamp duty government fees, conveyancing costs and loan establishment fees, there are also ongoing running costs.
As a renter, you don’t need to worry about council rates, repairs, depreciating, body corporate fees, water (most of the time) or insurance costs. The landlord is responsible for handling the expenses that come with buying and managing an investment property.
Renting cons worth considering
But let’s keep it real. There can be some potential downsides to renting which outweigh the positives, for example:
- While some homeowners may eventually pay off their mortgage, you’ll need to keep making rental payments forever.
- Renting can be unpredictable. If your landlord decides to sell, you could be forced to move house, which can be stressful and pricey.
- While renting offers greater flexibility on location and choice of home, tenancy laws and lease agreements can restrict your freedom when it comes to decorating and feeling ‘at home.’
Doing the sums: What’s the best option for you?
There’s no way around it – this isn’t an easy decision. You’ll want to consider several factors before you commit to one option long term. Think about things like:
- Your financial resources;
- family needs;
- investment goals; and
- appetite for risk.
So what are the next steps?
Do your research and talk to an expert. You should also look at home loan tools and calculators to see how much you could afford to borrow and how much repayments would be.
Rent or buy calculators are readily available across the internet (here’s one from Your Mortgage, for example), and they can help you make an informed decision.
Hot tip: Want to keep renting? Save up!
A big advantage of buying is how it creates disciple in saving money. By making regular mortgage repayments, you’re forced to save money by putting it into your home loan.
Build up your savings nest egg by setting up a separate account with your current bank (or a separate one), and put away a set amount each pay. With some research and strategy, you can use this money to build an investment portfolio.