Renting vs Buying: What's the better option?
In Australia, there is a debate about whether it is cheaper to rent or buy a home. While there are pros and cons to both options, the answer to this question depends on a range of factors, including;
- The location,
- The type of property
- Your individual's financial circumstance
Advantages of renting?
For many Australians, renting is a preferred option, not just because they might not be able to afford to buy, but as a lifestyle choice as well as it can offer lower upfront costs, flexibility and low maintenance among many other advantages.
- Lower upfront costs: Renting typically involves paying a bond deposit, rent in advance to secure your tenancy and a monthly or fortnightly rental payment, which can be more affordable than the upfront costs of purchasing a property, such as the home deposit, legal fees, and stamp duty just to name a few.
- Flexibility: Renters can typically move to a different property or location more easily than homeowners, depending on their lease term and contract, renters usually only need to provide a couple weeks or months notice if they need to urgently relocate.
- Maintenance and repairs: The general home maintenance and repair costs usually come out of the landlords pocket and saves renters both time and expenses.
- Diverse properties and neighborhoods: Renting can provide access to a diverse range of properties and neighborhoods that might be out of reach for home buyers.
Overall, renting can provide flexibility, lower upfront and maintenance costs and the opportunity to live in well-sought after and diverse neighborhoods.
Advantages of buying?
For some, the Australian dream of owning a home is still very much favoured, as well as the feeling of purchasing an asset that is 100% yours to do as you wish.
There are also a number of other reasons why buying a house could be the right option for you, including:
- Long-term cost savings: Over time, the monthly mortgage payments on a property can be less than the monthly rental payments on a similar property. Additionally, as the homeowner builds equity in the property, they may be able to borrow against it or sell it for a profit in the future.
- Control and stability: Buying a property provides the homeowner with control over the property and the ability to make changes to suit their needs and preferences. This can provide a sense of stability and security for the homeowner and their family.
- Forced savings: Making monthly mortgage payments can also act as a form of forced savings, as the homeowner is building equity in the property. This can provide a financial benefit when the property is sold or can be borrowed against in the future.
- Tax benefits: Homeowners in Australia may be eligible for certain tax benefits, such as the ability to claim deductions for mortgage interest and other expenses related to owning a property.
- Pride of ownership: For many people, owning a home is a source of pride and accomplishment.
Overall, buying a property in Australia can provide long-term cost savings, control and stability, forced savings, tax benefits, and pride of ownership.
What are the upfront costs of buying vs renting?
A good way to decide if renting or buying is right for you is to look at the costs involved and factor these in to your budget with your income to see which is more feasible.
Renting: Upfront costs involved in renting include:
- Bond Deposit: A bond is the money you pay at the start of your rental agreement as a security. Typically equivalent to one month's (4 weeks) rent. It’s important to note that a bond is not compulsory but most landlords and agents do ask for one. You should check your rights as a tenant before proceeding with a bond deposit. A helpful resource is the tenants.org.au website.
- Rent in advance: This is a payment in addition to the bond deposit to secure your tenancy in an overwhelming rental market. Usually requires 2 weeks rent.
- General moving costs and property basics: If you are moving out of home for the first time, you will need to spend on furniture, white goods and removalists. Ensure you factor these into your budget.
Buying: A total breakdown of costs can be found in our home buying costs guide. But generally include:
- Deposit: Typically equivalent to a percentage of the property's purchase price, and is paid to the seller to secure the property.
- Legal fees: Legal and Conveyancing fees are the costs associated with hiring a conveyancer or solicitor to assist with the purchase of a property in Australia.
- Stamp duty: A tax levied on the property purchase, and the amount varies depending on the property's value and location.
- Mortgage Fees: Mortgage fees are the costs associated with taking out a home loan to finance the purchase of a property in Australia.
- Building and pest inspection fees: A building inspection and pest inspection is strongly recommended when purchasing a property, this can help you avoid any nasty and costly repairs down the road.
- Lenders Mortgage Insurance: Lender's mortgage insurance (LMI) is a type of insurance that protects the lender in the event that the borrower defaults on the home loan.
- Mortgage Insurance: Mortgage protection insurance is a type of optional insurance that’s designed to protect one of your most precious assets, your home.
- General moving costs and property basics: Again, if you are moving out of home for the first time, you will need to budget for furniture, white goods and removalists.
Average cost to buy a home in Australia?
Data from the Joust platform shows the average value of a home in Australia in 2022 was $948,710.
Source: Joust.com.au
Average cost to rent in Australia?
Data from rent.com.au shows the median weekly rent for houses and apartments in 2022 per state was:
Source: rent.com.au
The impact of location on the cost of renting vs buying
Location can have a significant impact on the cost of renting versus buying in Australia. In general, property prices and rental costs tend to be higher in major cities and urban areas, compared to rural or suburban areas. Additionally, certain neighborhoods or regions may have higher demand, which can drive up the cost of both renting and buying.
The impact of location on the cost of renting versus buying in Australia may include:
- Higher property prices and rental costs in major cities and urban areas.
- Higher demand in certain neighborhoods or regions can drive up the cost of both renting and buying.
- The cost of living in a particular location, including factors such as public transportation, schools, amenities, and the local job market, should also be considered.
The best option will depend on an individual's priorities, financial situation, and future plans. Researching current housing market conditions, property prices, and rental rates in a particular area can help determine the most affordable option.
Things to consider before you choose
There are several factors to consider before deciding whether to rent or buy a home in Australia. Some of these factors may include:
- Financial situation: Individuals should carefully consider their financial situation, including their income, savings, and debt, when deciding whether to rent or buy. Buying a home may require a higher upfront cost and a long-term financial commitment, while renting may have lower upfront costs without the ability to build equity.
- Location: The location of the property can have a significant impact on the cost of renting versus buying. With many Australians being able to work from home, locating further away from the city may also be a way to bring the costs down.
- Future plans: Individuals should consider their future plans, such as their expected length of stay in the property, their potential for career growth or relocation, and their plans for starting a family or retiring, when deciding whether to rent or buy. Renting may provide more flexibility for short-term plans, while buying a home may be more suitable for long-term plans.
- Personal preferences: Personal preferences, such as the desire for stability, control over living space, and the ability to make improvements to a property, can also influence the decision to rent or buy. Individuals should consider what is important to them when making a decision about their living situation.
- The current state of the housing market: The housing market can be unpredictable, and the cost of buying or renting a home may fluctuate over time. Researching current market conditions, such as property prices and rental rates, can help individuals make an informed decision.
- The cost of living in the area: The cost of living in a particular location can impact the affordability of renting or buying a home. Factors such as the availability and cost of public transportation, access to schools and amenities, and the local job market should be considered when making a decision.
- The type of property: The type of property, such as a house, apartment, or condominium, can also affect the cost of renting versus buying. For example, buying a single-family home may be more expensive than renting an apartment, but may also provide more space and privacy.
- Maintenance and repair costs: Homeowners are typically responsible for the maintenance and repair costs of their property, which can add to the overall cost of homeownership. Renters may not be responsible for these costs, but may also have limited control over the condition of their living space.
- Potential for financial gain or loss: Buying a home may provide the potential for financial gain if the value of the property increases, but may also carry the risk of financial loss if the value decreases. Renting does not provide the potential for financial gain, but also does not carry the risk of financial loss.
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*The information contained in this article is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Joust recommends that you consider whether it is appropriate for your circumstances. Joust recommends that you seek independent legal, financial and taxation advice before acting on any information in this article.
