Guest post by Sara Salim
Well, there are several important aspects in deciding between renting and buying your next abode in Australia.
If you are interested in knowing, do your research and spare some time to read more.
While experts often recommend purchasing a house whenever possible there are many times when renting is the more suitable option.
The choice is up to you on which scenario works best depending on what your priorities are:
Why you should buy instead of renting
- Homeowners have an easier time renovating and customizing their homes
- Rentals don’t provide as much security as homeownership. It helps to feel at ease during extended stays in the same place.
- People often buy a home to build equity. Every mortgage payment increases your ownership of your house. Once paying it off completely, you can move into the house as your own.
Why you should rent instead of buying
Renting homes has many benefits, one of which is it’s a great way to save money as a young adult without taking on any debt.
By renting a home for the first couple of years, you can put that money towards other things that you need like education once, and may also help you relieve yourself from debt.
Owning your home is nice but there are a lot more benefits to renting homes than just saving up for your mortgage in general.
One invaluable advantage of renting instead of buying is that mortgage interest rates vary widely, meaning even if you afford the monthly payments now, they could go higher in the future and your budget might not be able to support it, read more about it here.
Does The 5% Rule hold?
Renting versus buying a home isn’t easy to figure out because no calculator will give you the data you need.
In general, the 5% rule of thumb is a good starting place.
While most people use the cost of mortgage payments compared to the cost of the monthly rent as an indicator of whether they should buy a place or not, this doesn’t take into account property taxes, homeowner’s insurance, maintenance, or closing costs which can add up over time and make buying more expensive.
The other reason why this formula isn’t ideal is that it doesn’t tell us how long we have to keep paying down our mortgage before we start building equity in our homes.
Keeping a budget is crucial
At the center of this household, the debate is the need to establish financial stability to protect oneself and one’s family over time.
In fact, neither buying nor renting guarantees any such stability.
It’s only when money management is properly accomplished that the chances are greatest for achieving prosperity.
At its core, what budgeting involves is a plan for the wise use of funds, which provide the wherewithal to meet personal needs, sustain a lifestyle, and achieve essential goals.
When choosing between buying or renting one’s living space, these housing costs must match one’s money management plan.
Read more about renting vs. buying
You may be renting right now and unsure if your budget can handle buying a home.
There’s nothing wrong with that!
While it may be a bit overwhelming to give up the freedom rental life offers, there are many benefits to homeownership!
One way of making sure you’re ready is to “try on” a mortgage.
The goal? Figure out how difficult it would be to pay your rent annually by adding an extra few hundred dollars each month over 6 months in a separate account.
You’ll then have an idea of whether you’re currently spending less or more than what you would pay for the equivalent monthly cost of owning the same home.
If the answer is ‘more’ – hopefully, that gives you some motivation to either cut back on your current spending and/or start saving more aggressively so that you can get into the market sooner.