In Australia is it better to buy a home or rent one? What are the advantages and disadvantages of either option in 2022?
The average house price for a property in Australia is currently around $681,100. However, the reality for people living in major cities is that they will likely pay far more to buy their own homes. For that reason, the rate of homeownership across Australia has declined since 2016, with many potential first homeowners choosing instead to rent. But is renting a better choice than buying? Choosing whether or not to buy a home is, of course, a personal decision, and you need to balance your lifestyle and goals to find out whether renting or buying is a better choice for you. To help you get started, here are the pros and cons of homeownership and the pros and cons of renting a home in Australia.
Pros and Cons of buying or renting a home
The pros of buying a home
There are several advantages to buying your own home:
- The ability to personalise where you live; and
- Greater wealth in the long-term.
However, the benefits of homeownership only apply when you buy the right home to suit you. The best way to find the perfect home is to book an appointment with several real estate agents in the area you are looking to buy, giving them an idea of what you need in a home. That might include things like how much you are willing to spend, how much work you are ready to put into the property, and how many bedrooms/bathrooms you need. That way, you won’t run the risk of panic buying the first place you see and end up feeling buyer’s remorse.
1) The home is yours
When you purchase your own home, you have the freedom to renovate, overhaul the garden and repaint anything any time you like without needing approval from your landlord. However, you should be aware that body corporate restrictions apply to most apartments, units, and townhouses.
2) Building wealth
In most cases, long-term property ownership will enable you to earn significant capital gains if you ever choose to sell. If you are buying the house because you plan to live in it for many years to come, this may not be a concern. However, if you are buying a property with the idea of selling in a few years to upsize, make sure that you have carefully considered all aspects of the property that may affect its value in the future. Such factors include:
- Environmental factors (is it in a bushfire/flood-prone area?); and
- Future commercial and residential development in the area.
It’s important to note that you should avoid signing a contract of sale for a property until you have sought legal advice from a lawyer or property conveyancer. If you’re in the position of buying or selling a property, seek the advice of a local property conveyancer as soon as you have either decided to sell or before you have legally committed to purchasing a property.
3) Financial and personal security
Owning your own home can give you more of a sense of security than renting. When you own the home that you live in, you are not at the mercy of the homeowner’s whim should they choose to sell the property or increase the rent. You may also be able to use the equity in your home to invest in purchasing another property, organise some home renovations or consolidate other debts.
The cons of buying a home
It’s worth noting that there can also be some potential downsides to purchasing a property rather than renting. Here are some drawbacks to buying a house.
1) Foreclosure risk
A foreclosure is a legal process by which a lender takes possession of a property and sells it when the homeowner fails to make their mortgage repayments. Quite simply, if you can’t pay your mortgage, you’ll likely lose your home and end up back where you started, minus all the money you put into the house.
2) High upfront costs
Many renters find it very difficult to save up for their deposit – it’s one of the most common reasons why renters stay renters. The deposit required to purchase a home will vary depending on the lender and your circumstances, though schemes to assist first-time homeowners can make this easier.
You will also need to consider upfront costs other than the property itself, such as stamp duty, legal fees, and moving costs.
3) Ongoing costs
You have ongoing costs to consider when you own a home you never had as a tenant. You will be liable to pay:
- Body corporate fees (if applicable);
- Council rates;
- Water rates; and
- Ongoing maintenance fees.
These expenses can add up quickly. For some, they may become an unaffordable financial burden when combined with the interest and fees you pay back over the life of a loan.
The pros of renting a home
Whether you can’t spare the funds needed to buy a home or prefer to have the flexibility to be able to relocate easily at short notice, renting a home does have some advantages over buying.
1) More money today
Renting is considered cheaper than buying in the short term, depending on where and how you choose to live. If you have other stresses on your finances now, such as starting a business or a family, you may benefit from the short-term savings made by renting.
2) Flexibility in where you live
By renting, you can easily relocate (within the terms of your lease agreement) if you need to move for work or decide to upsize or downsize to meet your needs.
The cons of renting a home
On the other hand, there can also be some downsides to renting a property that may outweigh the positives, depending on your circumstances.
1) No investment potential
Homeowners usually pay off their mortgage at some point. However, when you rent, you never stop paying. While homeowners are paying money toward their own investment – the home that they can eventually sell if they need or choose – renters are always contributing their hard-earned money towards somebody else’s investments.
2) Limited freedom in your home
While renting can offer greater flexibility with location and your choice of house, your landlord still has the right to restrict your freedom of design and expression when it comes to making the space your own. It is, after all, their house.
Furthermore, any changes that your landlord does allow you to make are an investment into the improvement of the value of someone else’s home. For example, if you want to install security doors in your rental property to improve the safety of your household, your landlord may only agree if you pay for it yourself. Your landlord now owns a home that has been improved, meaning it is worth more, without having to spend money towards the improvement. When you eventually move out, you’ll be left out of pocket.
To rent or to buy? This is a question faced by many Australians. If you are having trouble settling on the best decision for you and your circumstances, contact Jim’s Real Estate and Jim’s Property Conveyancing for advice or to explore your options on 13 15 46.