Renting vs Buying: How do they compare?

As house prices continue to rise, many Queenslanders are asking the question “should I rent or buy?”. This isn’t just limited to millennials either, with one in three first-home buyers significantly worried about the amount of debt they accrue as they take a step onto the property ladder. There’s so much rhetoric around rent vs buy, often rooted deep in the personal experience of family members or real estate agents. While owning your own free-standing home has been part of the ‘Australian dream‘ for decades, everyone has also heard the phrase “rent money is dead money.” But if rent money is dead money, then so too are interest repayments. So what’s the answer? And has it changed in the last decade?

87% of all Australians surveyed by Mortgage Choice last year believe the ‘traditional dream’ of home ownership is becoming more difficult to achieve. The pressure to buy your own home is still quite deep-seated in Australian culture. Even though the idea of a ‘dream home’ has become more flexible to include apartments and townhouses — it can result in buyers borrowing more money than they can really afford.

It’s an indisputable fact that property prices do increase long-term. According to Domain’s quarterly house price report, the median house price in Brisbane is sitting just above $500,000, making the Sunshine State one of the most affordable places in the country to buy. Brisbane is also one of that nation’s most rent-heavy areas, with 48% of Queenslander’s renting.

The latest survey suggests over three million renters around the country feel they might be renting for the rest of their lives — and perhaps this isn’t necessarily a bad thing. Renters don’t pay rates, maintenance fees, body corporate fees or home insurance, and there’s no upfront stamp duty to pay either. In the short term, renting is without a doubt the cheaper option with more money ending up in your pocket month-to-month when compared to paying off a mortgage. Renters also have the flexibility to live in a suburb they may not be able to afford to buy in and have greater flexibility with house size and location, relishing in the ability to move with ease.

On the other side of the coin, taking the plunge and purchasing property is most certainly an easier and more reliable way to build your long-term financial gains, with the majority of properties in Australia gaining value above inflation rates over a period of a decade or longer. Although a large part of your monthly repayments may be going towards paying off interest, a significant part is paying off your loan and therefore building equity in your own property rather than your landlord’s. Living in your own home also means you’re not limited by landlord restrictions. You can paint, renovate, landscape and put as many hooks in the walls as you want without worrying about breaching a rental agreement.

Even with stamp duty fees, interest payments and all other additional expenses that go with owning a property, it’s still generally considered to be more favourable than renting in the long term. It’s a stable investment that maximises your returns thanks to a little thing known as capital gains. While renters can still build a significant investment portfolio by investing the money you would have spent on a mortgage into shares, it doesn’t often work out that way (that new car and exotic holiday are just too tempting). Making repayments on your property is a way to enforce your savings, forcing you to ‘save’ at a rate that’s likely higher than if you were renting.

Rent Vs Buy - Crunching the numbers

No matter which option you decide on, housing will be the biggest ongoing financial cost throughout your life. With many pros and cons in both camps, what it all boils down to is making the right decision for you.

Written: 3 December 2018

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