Buying vs Renting: Weighing Up The Pros And Cons
Should you rent or should you buy a home?
There are costs and benefits associated with both, and it’s not always a straightforward decision. But with data from NAB saying it’s cheaper to buy than rent, we weigh up the pros and cons of renting and buying in Toowoomba in 2021.
Why rent your home?
When you rent, you’re free to move to a new home or a different area every time your lease ends. If you’re following a job, or school catchment areas, or you are simply not sure where you want to settle down, this flexibility might be just what you need.
- Free up your savings and diversify your investments
When you own your own home, there’s a good chance you’ve ploughed most, if not all, of your savings into buying it. Renters, meanwhile, enjoy the freedom to decide where and how to invest their savings. This gives them the chance to diversify their investments, which means they can spread their risk and avoid having all their savings eggs in one basket.
The downside of renting
- Less freedom and stability
The flipside of the flexibility that renters enjoy is the lack of stability. As a renter you can find yourself looking for a new home at the end of your lease whether you like it or not. You also have to ask permission to make even small changes to your home, such as growing a veggie garden or installing picture hooks.
- No compulsory saving
As a homeowner, paying your mortgage is a form of forced saving. Every month you’re putting money towards an asset that is likely to increase in value over time. When you’re renting there’s no such compulsory saving, and it takes willpower and planning to make sure you’re saving a portion of your income each month.
Why buy your home?
There’s no risk of being sent packing by your landlord when you own your home. You’re the master of your own domain, and unlike in a rented home, you’re free to decorate and renovate whenever and however you please.
- It may be cheaper than renting
Thanks to inflation and rising property prices, the cost of renting increases over time. Homeowners, on the other hand, pay less interest on their mortgage as time goes on and the principal is paid off.
Factor in Australia’s current historic low interest rates, and buying is cheaper than renting according to the NAB. Chief executive Ross McEwan says cheap-as-chips mortgage rates, along with government stimulus, mean there are more first home buyers in the market now than there have been in five or ten years.
Take, for example, 2 Claire Street, Centenary Heights. This 3-bedroom home in a highly desirable area is on the market for $425,000. It is currently rented out for $350 per week, or $18,200 per year. Using an interest rate of 3 per cent as an example, if you were to take out a $340,000 mortgage to buy this home, you would pay $10,200 in interest each year. That’s $8000 less than what it costs to rent the same property.
The downside of buying
- The costs of homeownership
The transaction costs of buying a home quickly add up. There’s stamp duty, conveyancing costs, government fees, loan establishment fees, and more. The Reserve Bank estimates the costs of buying a home at around 6 per cent of the purchase price. Of course, the costs don’t stop once you’ve bought the house. The biggest ongoing cost homeowners face is the interest repayments on their home loan, and there’s also council rates, repairs, water, insurance, depreciation and possibly body corporate fees to consider.
- The opportunity cost of owning your own home
Buying a home means your money is tied up in that property, so you can’t spend it elsewhere. This is known as the opportunity cost of owning your own home. The money you have invested in your home can’t be spent on travel, study, entertainment, your own business or other investments.
Trying to decide whether to buy or to rent in Toowoomba?
We can help you find the perfect home. Contact our friendly and professional team today.