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The great debate, is it better to rent or to buy a property here in Oz?
As we all know, the great Australian Dream is to buy your own place and put up roots, but as property prices continue to rise, many young people are concerned we’ve missed the opportunity to get in – and it makes more financial sense to rent, which is the best way to go?
Transcript:
The great debate rages on!
As we all know, the great Australian Dream is to buy your own place to live and to put up roots. But as property prices continue to rise, many of us young people are concerned that we might have missed our opportunity to get onto the property ladder, so it makes more financial sense to rent.
But what is the best way to go? In this video, I’ll walk you through the pros and cons of each, to hopefully, help you make that decision easier.
Pros of Renting:
Flexibility – the most obvious advantage is being flexible enough to move to another location if and when you choose.
Cheaper repayments – in many cases, the rent is often cheaper than the mortgage repayments on the same property. An example may be inner city and beachside locations, where it’s much cheaper to rent than to buy in those locations. There’s also no commitment to the mortgage that’s owing.
No outgoings – in residential tenancies, the landlord pays for outgoings such as rates and fees, in addition to being responsible for the repair of the property.
Cons of Renting:
Paying someone’s mortgage – the most obvious is that your hard-earned money is helping to payoff someone else’s mortgage.
Uncertainty – you are at the whim of the landlord as they can move in or evict you if they want to put the property up for sale.
Cannot make any changes – this is when you are reliant on the landlord to carry out repairs and maintenance in a timely manner. Typically you also can’t make any changes to the property.
Increased rent – also be aware that rent can increase over time as the value of properties increase.
Pros Of Buying
Stability – you own your own home!
Build Equity – each loan repayment you make builds up your equity position
Personalization – as the home is legally yours, you can personalize your own place as you see fit.
Optionality – a lot of people have turned their homes into investment properties down the track
Cons Of Buying
The Mortgage – this one is the most obvious, a mortgage is a very large financial commitment, probably the biggest one you and I will ever have, same goes with paying those pesky interest charges.
Saving for a deposit – this is bloody difficult in this day and age, especially as house prices continue rising.
Market volatility – unfortunately, we are also at the whim of the housing market, it can be a rollercoaster!
So, what’s the conclusion?
Well, rent money is dead money – because you will never be able to get it back, and at the end of the day you do not own anything.
But buying a property usually means a mortgage, and there is a reason the loan is over 30 years – that’s the bulk of our working lives gone just to service one loan!
Aw but then again, a place to call your own and grow roots doesn’t sound too bad does it?
Ultimately, it all comes down to your life goals and financial position, but can I let you in on a little secret?
If the rent is cheaper than the mortgage repayments, you might want to think about using that free cash flow to invest elsewhere, such as in the share market.
You’ll also receive income from your investment portfolio which you can use to buy even more assets!
Otherwise, you can think about becoming what’s known as a rentvestor.
This is where you rent where you want to live, such as a lifestyle location i.e. inner city or by the water – and invest where you can afford.
The benefits of rentvesting, apart from living where you want to, is having the flexibility to move around, and usually the ability to save a bit more than if you had to service a mortgage, as any interest on an investment property, is tax-deductible.
Whichever way to go, the absolute key is to always find the best use for your money, to ensure that it is working hardest for you, whether that is renting to invest elsewhere, or buying to invest in your own home, good luck!
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