It can be hard to know when the right time is to invest in your first home. The decision between renting or buying a house can be difficult, but there are some things you should consider before making your final choice. This blog post will give you all the information you need to make an informed decision about whether it is better for you financially and personally to rent or buy now.
First of all, renting is more affordable than buying – especially in a major city such as Sydney, Melbourne and Brisbane. When you rent, the monthly costs like heating and ventilation are already built into the price. Buying a home or apartment means that you pay for utilities separately. You also have to consider renovations or other expenses which could come up later if your house isn’t in good condition when you move in.
Secondly, you have less upfront costs to worry about when renting. Some people don’t have enough money saved up for a down payment or they can’t afford the closing costs that come with buying property. Renting allows individuals to save more of their income without the added expense of renovations, maintenance and utilities.
Thirdly, renting affords you freedom. You don’t need to pay for house insurance, property taxes or the like when renting because these costs are covered in a monthly rental fee. If you own a home, all of these expenses have to be paid out-of-pocket which takes away from money that could otherwise be saved or invested elsewhere. Plus, in theory, if the neighbours end up to be complete nightmares, you can break your lease and leave (if you owned – this is a much harder decision to make).
There are three main disadvantages of renting, however:
You can’t decorate as you like – You cannot paint your new wall bright pink or get a new carpet without approval of your landlord. You are also required to keep up with all repairs, which can be costly if you are not an experienced do-it-yourselfer.
Unplanned costs – If something breaks in the house, you have to either pay for it out of pocket or get the landlord’s approval for a repair. You also will have to pay bills, such as electricity and gas, which you wouldn’t have if the house was yours.
Lack of stability – Renting can be unstable because you don’t own the property and your landlord could choose to raise the rent or evict you from the property at any time.
The ability to live in your home while you invest
The public perception of buying a house is that it’s an investment, whereas renting is just throwing money away. That’s not quite true. If the rent on your rental property increases at the same rate as inflation over 25 years, then actually you’ll have lost money by not owning. But there’s another factor to consider: You don’t just lose the rent that you pay, but also what you could be earning by investing in other things.
If you’re looking at buying a home with an eye on investment rather than living there, then it makes sense to keep your options open. Why buy one property when you can buy 10, using the equity from another property to help fund the deposit? Plus, with a whole range of investment options available in the current market, you may find that there’s a better return on your money elsewhere.
You can borrow against its equity
Many types of investment offer only limited liquidity. With stocks and shares, you could lose all your money overnight should the markets take a sudden tumble. Bonds can be just as insecure, while property is generally regarded as one of the only ways to create long-term wealth that you can live off for at least part of your life.
That’s not necessarily true. The ability to borrow against an investment property’s equity makes it easier than ever before to access the money you’ve built up. A cash-out remortgage can give you enough money to fund an entirely new investment, or pay off debts and give yourself some breathing room.
You can rent it out (and earn “passive income”)
Yes, it’s possible to make money from someone else’s mortgage. Renting out your property not only brings in an income to help offset the costs, but can also potentially take some of the pressure off your own personal finances.
First you’ll need to find a tenant, which is easier said than done, then check that they’re suitable for your property and cover yourself against any damage or unpaid rent. If you need cash quickly, selling part of your equity can be a fast way to earn money, but it’s important to consider the risks involved. The ability to rent out your property is another reason why buying can make financial sense, as you could use the money from short-term lets such as Airbnb and StudentUniverse to meet some of your borrowing costs.
Buying a home comes with many advantages. There are, however, disadvantages as well. The following are three of the most significant disadvantages of buying property.
The first disadvantage is that it’s expensive to buy property. As opposed to renting, where you are responsible for just your monthly payment, purchasing means you have to pay for the property and then you have to pay all of the taxes and maintenance fees that come along with it.
The second disadvantage is that buying a home means you are tying yourself down. Once you buy your dream house, you may want to move afterwards as well as find somewhere new to retire or raise your family. Buying property is a serious decision that can forever alter your life. Therefore, you must make sure it is the right financial move for you to make.
The third disadvantage of buying property is that, if the market falls down after purchasing, you have just bought a house at a high price. If the market falls, then your property may be worth less than what you paid for it. If the market falls, then you might end up with a financial loss at a time when you can least afford it. Therefore, if you want to buy property, be sure that the money is safe and that your family will not have to move often.
So which one is right for you?
The benefits of buying a home are not always the right choice for everyone, and there are plenty of reasons to make the decision to rent. Ultimately, the right answer for you will depend on your personal circumstances.
If you’re ready to buy (and your personal circumstances allow for it), learn more about Joust – a new service that is disrupting mortgage lenders by allowing you to place your mortgage up for auction online!