Generations of Australians have been brought up with the concept that they should own their home. In fact, “dead money” is an expression often used to describe renting. However, in many other countries home ownership tends to be less common. So what is the best option for Australians – to buy or rent?
The answer really depends on your personal circumstances, financial objectives and your ability to make prudent financial decisions.
Paying off a mortgage provides a means of forced savings – a level of savings, which many people would not have the discipline to achieve if it were voluntary, whilst building an asset. Alternatively, to make renting your home a financial success, it is most important that the same level of saving is applied. Money, which would have gone to paying off a mortgage, should be applied to a strategic investment plan.
When you rent your home, the outlay on rent is invariably less than the combination of mortgage payments, rates, insurance and maintenance, so the difference should be applied to an investment portfolio.
Some other considerations include:
• If you also use borrowed funds for the investment portfolio, you may well achieve a higher after-tax return than paying off your home.
• The cost of buying and selling your home is considerable after allowing for stamp duty, agent fees and legal costs. So if you move frequently because of your job or lifestyle, renting may be the answer.
• When you rent, the owner is responsible for all costs such as rates, repairs and maintenance. If the termites attack it’s not your worry!
On the other hand, you do not benefit from the capital appreciation of a rental home. So it all comes down to personal circumstances, and there may be periods when both strategies are appropriate.
Our accountants and financial planners are available to discuss the pros and cons of home ownership and renting, the impact it may have on you financially and your short and long term goals.
Call (02) 4926 2300 or email us.
Call Leenane Templeton today if you are struggling with the age-old question we all face – to buy or rent?