If you’re considering moving into a new home sometime soon, you may be facing the age-old question: rent or buy? There are a lot of things to think about when trying to answer this question. Buying a home is a major undertaking, and one that will have long-lasting effects on your future. Let’s make sure you’re fully informed and ready to make a proper decision.
Here are some things to consider.
Your Age and Financial Situation
In a previous article, we looked at “how much you should save” based on where you are in your life and work cycle. To quickly recap, you should generally be saving less when you’re younger and more as you get older.
In theory, your earnings increase with age and improved work situations. By the time your personal fin
ance management skills are honed and you’re ready to commit to a big financial decision like homebuying, you’ll be ready for it.
Few people are buying homes in their 20’s. This is a time to learn your craft, harness your abilities, take entrepreneurial risk, and generally sort yourself out for the future. Saddling yourself with a mortgage and an onslaught of added expenses isn’t typically on the menu.
However, if you’re established in your career, have enough savings for a down payment, and are considering taking that leap; read on.
The Costs Associated With Renting Vs. Buying
When talking about renting, many people ask: “what’s the point?” Sure, you’re paying someone else’s mortgage, but, consider all the costs that go into buying a home. Beyond the actual price of the property, there’s stamp duty, water bills, local council charges, and more.
In contrast, buying a home is an investment in the future. You’re still paying a mortgage, but at least it’s your own. As home prices increase, theoretically so will the value of your property. When it comes time to retire and sell, you can expect a nice profit.
Buying a Home is Riskier
It’s no question that home ownership carries more risk than renting. There are disasters to consider, ongoing maintenance, as well as the risk of the real estate market in your area dropping. It is, of course possible that your home will lose value. As a renter, these concerns aren’t as present.
Disasters may strike, but they’re usually your landlord’s problem. As a renter, you can simply move elsewhere. If the property decreases in value, you may wind up paying less rent and your landlord will be the one who isn’t happy about it. And lastly, there’s maintenance to consider, but as a renter if you need a new window for example, you usually aren’t the one paying for it.
The Freedom of Home Ownership
Risk aside, owning a home has its perks. With some restriction, you are free to make improvements to the property, paint the walls, plant a garden, whatever you’d like. It’s YOUR home. You own it.
There’s also a good deal of security that comes with home ownership. Your mortgage ensures that you know what your payments will be (depending on interest rates), and not having to adhere to a renter’s agreement means you don’t have to worry about moving when your term is up.
If starting a family and raising children is in the future, a home is a great way to plant roots in the community and establish yourself.
The Financial Benefits of Both
Renting a home will cost you less money. If it doesn’t, you may as well purchase a home. That means more money in the bank for you to spend elsewhere. If you’re at a time in your life where you want to travel, take entrepreneurial risks, or save for the future; the flexibility of renting is an attractive option.
Buying a home is an investment. It will cost more money up front and you’ll have to pay that mortgage off over time. In the long run, you may come out on top from your investment while securing a place for you and your family to live at the same time.
The Other Option
Still, a third option is what’s known as “rentvesting.” This is a “best of both worlds” scenario where you buy a home as an investment property while renting another for you to live in. It carries its own risks, but can be an attractive option for its tax benefits as the mortgage on the investment property can be deducted. There is also negative gearing available, which although it impacts your cash flow, it can be very beneficial in relation to saving tax.
The Verdict: It’s Up To You
Only you can decide which option is best for you. How you manage your personal finances will play a large role in your decision. Thankfully, PictureWealth can help you get a handle on your finances.
By diving deep into your financial health, PictureWealth can show you how to organise and optimise your money. When you’re ready to rent, or buy, you’ll have a better understanding of how your money works and how you can make it work for your living needs.