Sunday, 20 May 2012

Rent vs Buy

It is always interesting to see if it is better for people to rent or to buy. It is a big decision, a huge lifestyle choice either way. Financially speaking there is so much to take into consideration, such as seeing what the RBA is going to do with
I have always found it interesting, I think that people rush into the decision to purchase a house way to quickly, I mean, it is most likely the biggest purchase we will ever make, and yet we sometimes dive into it giving less thought to what mobile phone contract we will pick. When I purchased my first property (it was a PPOR) I made sure I researched as much as I could to see if it was the right thing for me to do at the time. It is interesting, at the time I thought I was making the right decision, I guess it has been ingrained into the Australian culture that owning your own house is the ultimate dream, and the sooner you can do this, the sooner you will be content. Looking back, I realise I may have made a mistake, not a diabolical one, but just believe I may have been able to make a better decision if I chose to rent compared with buying.
There are plenty of advantages compared with renting, mainly, typically because the rent paid will be less than the mortgage repayments, it will open you up to a lot more cash flow than if you purchase a property. For example, say you wanted to live in a $300,000 house, you would probably pay around $300 per week in rent. Whereas to purchase the same property, you would be looking at paying around $500 a week in interest repayments, a significant amount less in cash flow compared with renting. These figures do not include the additional maintenance, strata, utilities, rates etc that come along with purchasing a property. The extra funds with renting can allow you invest elsewhere, or to simply have a higher quality of life.
One more big advantage to buying compared to renting, is if you find out that you make the wrong decision with where you live, it can be so much easier to move when renting compared to if you bought the place. Sure the actual moving is a hassle, but apart from removalist and cleaning costs, it is nothing compared with closing costs of selling a property, not to mention the stamp duty required with purchasing a new property. Further on from this, renting will also give you so much more flexibility with where you can live, mainly because it is cheaper than buying, it allows you to live where you want, rather than where you can afford. And if your life status changes, then you can move to suit your new lifestyle. If you start having kids, you can move near a school, if you retire, you can move somewhere quieter. Of course you can still do this when you buy, but the buying and selling costs make it way too impractical. 
An example of the above is my business partner, Lenny, he works near the city, cannot afford to buy a house anywhere within 40 minutes that is also in a good area, so renting turned out to be the best option. It suited his lifestyle, he can be near where the nightlife is, near his friends. And everything works out great, in a couple years if things changed, such as his office changed location, it is not much of an issue to move to somewhere closer again as long as you continue to rent. If he gets married and starts to have a family, again it is not difficult to move into a more family friendly house. 
However just note that this is not only going to focus on the advantages of renting over buying, there are definitely aank 
It is also important to mention that flexibility is not for everyone, there are some of us that want to know where they will be year after year, they want the guaranteed security. When you rent, even with long term leasing, there is always the possibility that your landlord situation changes and the property no longer gets rented out. Whereas when you have a mortgage, you own the place, so there is the security that you will stay put in the same property as long as you want. Finding a new place to rent can be very stressful and frustrating experience, this is the main reason I chose to purchase a property as oppose to renting. 
So above I have outlined the sentimental reasons and touched on the financial advantages and disadvantages associated with buying verse renting. To look at this at a purely financial standpoint, I developed a spreadsheet which has fairly simple inputs to compare purchasing compared with renting.

If you would like a free copy of this spreadsheet, please click this link Spreadsheets 

If you have any other questions or comments, feel free to email us at 

Disclosure: The article is not to be taken as investment advice and the views expressed are opinions only.  Readers should seek advice from someone who claims to be qualified before considering allocating capital in any investment.

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