Is it ultimately better to rent or own a home?

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With rising concerns about housing affordability to buy a house affecting would-be first-time buyers, the decision to rent or purchase is more divisive than it has ever been with continuous rent increase and interest rates people finding difficult to pay mortgage repayment during this pandemic year.

While there are some incentives for first-time homebuyers, such as the First Home Loan Deposit Scheme, many young generations are afraid that they may have missed their chance to climb on the housing ladder completely as house prices continue to increase.

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On the same hand, other observers argue that Australian property markets are just too costly and that renting is a better financial option.

Do you prefer to rent or buy?

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The fact is that both alternatives have advantages and disadvantages, and it is ultimately up to you to decide whether renting or purchasing a house is appropriate for your personal and financial circumstances in the long run.

The most obvious benefit of renting is flexibility; after your lease expires, you can easily move from house and region of the area.

As a homeowner, however, you have less freedom when it comes to relocating because of the expenditures connected with purchasing and selling property.

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Selling a property costs around 4% of the sale price while buying a home costs about 6% of the purchase price (stamp duty, government fees, loan establishment fees, etc).

Renting

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When you rent, you have the freedom to move whenever your contract expires. However, if your landlord decides to sell the property or convert your apartment complex into condominiums, you may be forced to relocate quickly. They might just raise the rent to an amount that you cannot pay.

The most common misconception about renting is that you’re “squandering money” every month. This isn’t correct. You’ll need a place to reside, which will cost you money in some way. While it is true that monthly rent payments do not contribute to equity growth, not all of the costs of owning contribute to equity growth.

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When you rent, you know precisely how much you’ll pay each month for accommodation. When you own a home, you may just have to pay your mortgage and monthly bills in a single month. Then, the following month, you may need to spend another $15,000 on a new roof (which your homeowners’ insurance may not cover). While a leaky roof may cause temporary discomfort as a renter, it’s unlikely that you’ll ever have to pay to repair your roof while renting. Home-related monthly expenditures, such as renter’s insurance, are usually more predictable and substantially less expensive.

Each time your lease is up for renewal, you risk an uncertain rent rise as a tenant. Rent hikes might be significant if you reside in the desired neighbourhood. Your monthly housing payments will never increase if you acquire a fixed-rate mortgage, on the other hand.

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While homeownership is frequently promoted as a means of accumulating wealth, your home’s worth might depreciate. It’s possible that the pleasant area where you recently relocated may deteriorate. A large company might depart the region, resulting in a significant population drop and a housing surplus. Alternatively, there may be a surge in home building, which would keep prices low. You may buy a property for $200,000 tomorrow and find that it is still worth $200,000 after 30 years, implying that you have lost money due to inflation.

Owning

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Intangible benefits such as a sense of stability, belonging to a community, and pride of ownership come with homeownership. It is not, however, suitable for restless or migratory individuals. The first illiquid asset was real estate. If the property market is down, you might not be able to sell when you desire. Even if it’s up, selling incurs substantial transaction fees. When you buy a home, it is much more expensive to change your mind about where you want to live.

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The total cost of owning is often higher than the total cost of renting. Even if the monthly mortgage payment is comparable to (or less than) the monthly rent, this is true.

As a homeowner, you’ll have to pay for various expenditures that you wouldn’t have to pay as a renter:

  • Real estate taxes
  • Garbage collection
  • Sewer and water services
  • Maintenance and repairs
  • Controlling pests
  • Pruning of trees
  • Insurance for homeowners
  • Pool maintenance
  • In certain regions, flood insurance is required by the lender.
  • In some places, earthquake insurance is available.

Mortgage interest is perhaps the most wasteful cost, as it may account for virtually all of your monthly payments in the early years of a long-term loan. Consider the following scenario: You take out a 30-year loan for $100,000 at 4% interest. Your first monthly payment will be $477.42, with an interest payment of $333.33 and a principle payment of $144.08. It will take roughly 13 years before the principle portion of your monthly payment outnumbers the interest portion. You’ll pay $71,869.51 in interest in total.

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Whether you’re a novice or a seasoned investor, you need an adviser who takes a comprehensive approach to wealth building in times like these, and that’s precisely what you’ll receive from the multi-award-winning team at Metropole.

Buyer’s agency

A buyer’s agency is a company that represents a buyer We’ve been engaged in over $4 billion worth of transactions as Australia’s most trusted buyers’ agents, producing wealth for our customers, and we can do the same for you.

Years of expertise and insight from our on-the-ground employees in Melbourne, Sydney, and Brisbane are something money can’t buy. A real estate company can assist you in finding your new house or good investment property.

Particular Points to Consider

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It’s not only about money when it comes to deciding which choice is best for you. It’s also about your comfort and your life goals. Ignore those who tell you that buying is always better in the long term or that renting is a waste of money. Also, don’t believe the claims that buying is better if your monthly mortgage payment is the same as or less than your monthly rent payment. Housing markets and personal situations are just too diverse to make such broad claims.

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More significantly, anybody who discourages you from buying a property because of your ethnicity, religion, or marital status should be ignored. Unfortunately, in the past, people were frequently denied property ownership due to their ethnicity or religious convictions. Illegal practices such as redlining continue to discourage minority populations from purchasing a house.

Many people also have the misconception that they must get married before purchasing a property. The truth is that the only thing that mortgage lenders should evaluate is your capacity to make payments.

 

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