Accommodation lifestyles can be divided into two simple categories – those who choose to rent their accommodation and those who choose to own it. If you’re a millenial considering becoming a first home buyer there are a few factors you need to consider.
When having the rent versus buy debate it’s important to understand that both options have distinct advantages and disadvantages over the other. The cost is always one of the most important factors to consider but lifestyle options come a very close second, and for many people, can be an even greater priority than the cost.
Let’s start with the comparative expenses. Money is always a determining factor and, depending on your lifestyle needs and where you want to live, weighing up what you can afford with what you require may be the ultimate deal breaker for which option you take.
To help you in the calculation you can work through a mortgage versus rent calculator that will help compare the cost of the two options. You can find a useful tool that will help you do this here
Aside from cost, however, there are a number of lifestyle factors that need to be considered:
Certainty – Owning your own home provides certainty of accommodation which a rental property is unable to offer. If renting you can never be sure how long you can continue occupying the premises, whereas a property you own is largely at your own discretion. Renting can also present problems if you are in a dual sharing arrangement and your name is not on the lease.
Simplicity – Renting, however, does offer a certain degree of simplicity that owning a house doesn’t. The time and cost involved in finding accommodation and signing up is significantly lower than for buying a house. If you’re a first home buyer then your purchase will involve legal fees, mortgage agreements and purchase contracts.
Flexibility – It addition to being simpler, renting also provides a greater level of flexibility. Changing circumstances or moving locations can be done easily provided the lease isn’t being broken (if you’re only 3 months into a 12 month lease you may wish you’d owned your own house!) This can be far more convenient, especially if you are in a relationship that is unlikely to continue (unfortunately often a sad reality of life)
Maximising Returns – With most forms of accommodation offering around a 4-5% yield, buying a house offers the opportunity to save yourself some of this cost (although expenses need to be factored into the equation). However, if there are better ways to invest your money then renting could be the best alternative.
This can often apply to business owners who may be better to invest their money into their business and rent if the returns are greater than the cost. Investing $500,000 into a business that offers a 15% return on investment and renting personal accommodation may make more sense than tying the money up in a house. There may be tax advantages to consider in this, and ways of structuring the tax deductibility of the home if it is later purchased via refinancing business equity, so if you are in this situation it pays to discuss it with an experienced financial advisor.
Payment Flexibility – One advantage that owning can provide over renting is an ability to have some control over your regular payments. Rent is rent – and it’s unlikely a landlord will allow you to reduce the amount you must pay. However, by refinancing a property mortgage, or lengthening the timeframe of a first mortgage you get, you have the option of reducing your regular commitments should the need arise. This can help take the pressure off in times of uncertainty.
Freedom – As the old saying goes “A man’s (or woman’s) home is their castle” and there is little doubt that when it comes to owning your own property you have many of the powers of a king or queen. Don’t like the colour scheme? Feel free to change it. Need an extra room or vegetable garden? It’s yours to do as you please. In this day and age, however, with rights come responsibilities and the increased examples of property owners being sued by other members of the public have left some wondering whether the increased responsibilities are worth it. There’s no doubt, however, that an owner has far more choice in what they may do with their property than a tenant can hope for.
Whether you are considering buying a house or renting there are clearly a number of factors to consider. It is recommended, however, to start with the costs and see what type and value of property you can afford. You best starting point for this is a mortgage broker or financial planner who can work through your income figures and recommend a price range that you can afford.
The information provided is intended as a guide only and does not take into consideration your personal situation, needs and objectives and should not be considered as advice of any nature.