29 November 2011
Aaaah, the good old rent vs buy argument - favourite topic at weekend bbq’s for years now.
In the “buy corner” we have:
- Why pay off someone else’s mortgage when you can pay off your own
- At least if you buy you are secure and can’t be kicked out when your lease is up
- You will be rewarded with handsome tax-free capital gains when you do eventually sell
- You can renovate and or make any changes you like as it’s “your place”
And in the “rent” corner we have:
- I can get a lot more for my rent money than I can for an equivalent home loan repayment
- If I choose to move suburbs or areas it is really easy and I have not wasted any stamp duties paid
- I can invest my savings elsewhere as I did not have to put everything I have into a deposit
- I am under less pressure and can access my capital if I need extra funds
All things considered, there are strengths and weaknesses in both sides of the argument. This is also not a topic that has a clear “correct” answer – as every situation is different and the outcomes for each person will depend on their specific circumstances. That said, MyRate reviews interesting debates regularly and without getting into an in-depth analysis of each side of the argument, we will simply pass comment on a few points only.
Things for “buyers” to think about:
- The “pay off someone else’s mortgage” argument is not entirely accurate. Renters pay rent, buyers pay interest on their home loan. Neither payment adds any “equity” or “ownership in” either of the underlying properties. Further, at times, and depending on market conditions, those payments might be very much the same in dollar terms.
- As for the capital gains argument, well that is simply a matter of market conditions and whilst many people have seen their home values rise over the long term, this is not a hard and fast rule with guaranteed results
Things for “renters” to think about:
- The “I can get more for my rent money” argument is heavily dependent on market conditions. Market changes such as interest rates, inflation, unemployment, housing affordability, and various other factors have always impacted rental property availability. In fact, rental supplies are currently so tight that it is not uncommon for 20-30 parties to show up at inspection open times with the property being rented out to tenants often willing to pay a lot more than the original advertised weekly price. This means that there is a very real “lack of stability” factor associated with rental properties, and for families with children in local schools, etc., this can cause lots of stress.
Food for thought…
