The decision to rent or buy a house is a tricky one. Often, it’s not even a matter of choice, but what you can afford. As increasing property prices make it more challenging to purchase a house, for some people, there’s no option left but to rent because they cannot afford to buy where they want to live. But then, renting isn’t as cost-effective either.

House rentals have increased by over 9% in the last 12 months, and the vacancy rates have dropped. It means renters are not only paying more than before, but it’s also getting challenging to find a suitable house to rent. But does that mean buying a house is better than renting one? Not necessarily.

Owning a house does offer plenty of benefits. You have the freedom to decorate the home as you please or renovate it to suit your changing circumstances. You also build equity in the property as you pay off the mortgage. On the other hand, there are maintenance costs and council charges to pay that renters don’t need to worry about.

Still confused?

Here’s a list of pros and cons to consider when deciding whether to buy a house or continue renting.


Pros of renting over buying

  • If you are someone who needs to move frequently because of your job or some other reason, you can freely relocate as a tenant once your lease expires. Unfortunately, homeowners don’t enjoy such flexibility due to the costs of buying and selling a property.
  • Rising property prices have made it almost impossible to buy a house in most states’ inner and near city locations. But if you are someone who prefers the lifestyle and career opportunities these locations provide, you may consider renting a home here. Despite increasing house rentals, your monthly rental payments are likely to be less than the mortgage repayments on the same property.
  • As a tenant, you avoid paying for costly maintenance, council rates and insurance premiums that your landlord bears. As a result, you may have more disposable income each month than if you had a mortgage and other homeownership costs to pay.


Cons of renting over buying

  • As a tenant, you will always pay rent, which will likely increase over time. Your fellow owner-occupiers may own their home in the next 25 years after having paid off their mortgage, but you would still be at the mercy of your landlord.
  • As a renter, you might lag on savings, too. Monthly repayments force you to skimp. With no obligations, the urge to splurge may take over. However, financial discipline can help avert this danger. Even financial experts agree that renters may retire poor unless they become wiser, save harder and invest smarter.


Pros of buying over renting

  • Buying your own home makes you the master of your own space. You are free to decorate your house as you like with no landlord to worry about.
  • You’ll build equity in the property with every mortgage repayment you make. Once you have enough equity, you can take a loan against it to renovate your house and increase its value further.
  • If you wish to live somewhere else, you can choose to rent out your property so that your tenant is paying off at least a part of your mortgage.


Cons of buying over renting

  • You typically need a deposit equal to 20% of the property’s value to qualify for a mortgage, which could take years to save.
  • Paying off a home loan is a long-term commitment that can take up a substantial percentage of your monthly income for up to three decades.
  • Even though you save rent money when you stay in your house, there are other costs, such as council rates, maintenance charges and insurance premiums, which you need to pay.


Rent or buy: What should I choose?

The decision to rent or buy will ultimately depend on your financial and personal circumstances. If you cannot afford to buy where you want to live or prefer the flexibility of moving homes, renting may be a convenient option for you. However, you don’t build any equity when you rent a house or benefit from increasing property prices.

There’s a third option worth considering for those who want to enter the property market without taking a large mortgage on their dream home. Rentvesting is a combination of renting and investing. It means you continue renting where you want to live and simultaneously purchase an affordable investment property somewhere else. But before you choose this option, make sure you can afford to rent and pay off a mortgage at the same time.

Just because an investment property is cheaper than your dream home doesn’t mean you’ll be able to afford it, especially when you are paying rent on another house. You could use our online mortgage repayment calculator to work out the monthly repayment amount for different loan sizes before deciding on either approach.


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