To be or not to be, thought the despondent prince in Hamlet, mulling over the questions of life.
To buy or not to buy (and rather, rent), is what almost every person in Australia is thinking currently!
Note: This post has been completely rewritten as of 30 November 2016.
Avocados or not, Gen Y is not only opting for healthy food options (of course, superfoods like avocado don’t come cheap), but also leading the property investor club in Australia from the front. In an analysis by ING Direct, it has been revealed that Gen Y is spending more on property investment than Gen X or the Baby Boomers. In fact, 22% of Gen Y holds at least one investment property, followed by 20% Gen X and 19% Baby Boomers. The survey also revealed that one in five Australians owns an investment property.
Nevertheless, the majority of Gen Y, popularly known as the Rent Generation, still chooses to rent than own their own home, despite investing head on in the Australian property market.
Owning a property in Australia can be called more of a mindset, a dream most of us grow up with. However, the age-old debate of Renting Vs. Buying has changed in context. The real question for Gen Y (and many others, too) is not whether to buy a house or rent, but whether to buy their own home or purchase an investment property and continue renting in a comfortable place.
However, before we move on to the convenient option of Rentvesting, let us first have a small chat about the unending debate – Is renting or buying better?
There is nothing better than owning your own house; of course, only if finances permit and the housing costs don’t exceed 25% of your monthly incomings to ensure you can afford the house you buy. While you may not have the requisite 20% home loan deposit, you can still borrow with low deposit and take a home loan. You can calculate your repayments by using our home loan calculator.
There is no point of buying the property only to lose it to the bank later.
Is it renting over buying then?
Well, there is no right answer for this one. The choice ultimately lies on your financial condition and vision. Today, when housing affordability is a major issue, many youngsters feel locked out of the property market and think renting is their only option. Other trotting youngsters choose the convenience of renting over being rooted to a single spot.
Why rent over buying?
1. Flexibility: While it is easy to move around and relocate as your job demands when you are renting, disposing your own property and buying another each time can cost dearly.
2. Cheaper. Property prices in suburbs have skyrocketed and it is almost impossible to buy a house in the posh areas neighbouring your office. But you can rent for a convenient, comfortable life at a much lesser cost. Of course, there are no maintenance, repairs and insurance premiums to pay, as the landlord will take care of everything.
3. Better cash flow. Instead of the monthly repayments, you are free to invest as you like. You can take a holiday or study further.
Cons of renting :
There is the ugly side of the coin, too. As a tenant, you will always pay rent, which will only 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 have your treasured flexibility, albeit at a cost.
It goes without saying that you might lag behind 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. In fact, financial experts say that renters may retire poor unless they become wiser, save harder and invest smarter.
Why buy over rent?
1. Buying your own home makes you the master of your own space, letting you decorate it as you like and stay as you like.
2. Further, with the property prices catching up like fire, more chances are you will gain from the appreciation in property prices.
Cons of buying :
However, with buying come the cons of monthly repayments, interest on the mortgage, accessory costs such as stamp duty, lender’s fee, conveyancing costs, agents fee (this can add up to a whooping 5% of the purchase cost!) and the ongoing maintenance costs of owning the property.
Now that we have discussed the renting vs. buying pros and cons, and there is no clear winner, how about renting while buying, the rentvesting strategy that many youngsters are currently adopting.
Increasingly, Gen Y is choosing to rent in locations they love but can’t afford to buy in, and invest in upcoming suburbs for a heady rental income (to take care of the mortgage repayments) as well as tax rebate for expenses and depreciation. A clear winner, isn’t it?
Interest rates on home loans are at an all time low and it could be the right time to buy your own home or invest in one by clinching a great home loan deal. With current home loan rates well under 4% (variable rate), you can compare home loans for lowest home loan rates and home loan options suiting your financial condition.
By Vidhu Bajaj