Rent Vs Buy - Which is Better ?

Many people ask us the question should they buy or rent ? Even though I love property investing myself we will usually go through a list of questions before making a recommendation.

Here are some of the pros and cons that every person/couple should consider before they commit to buying.

Buying
Advantages
- Emotional satisfaction knowing security is under your name
- Another way of investment, build equity
- Once you have built enough equity, you can borrow against it for other investment
- Maybe capital gains tax free
- If your mortgage is paid off, there are very little ongoing expenses
- Forced saving program

Disadvantages
- High cost of entering eg: Stamp duty, legal costs and possible land tax
- When interest goes up you might not be able to afford the repayment
- If bought in wrong property cycle and neighbourhood, price may actually decline
- Less flexibility eg: high transaction cost to sell then buy again

Renting
Advantages
- Normally cheaper than making mortgage repayments (if you don’t have a big deposit)
- More certainty on month expenses, as interest rate may fluctuate faster than rent
- Can live in suburbs or properties you want but can’t afford to buy
- Landlord wears most of the costs like strata, council rate, repairs.
- Flexibility, need to move around
- Can invest money elsewhere eg: stock market or business

Disadvantages
- Maybe forced to move out as landlord wants the property back
- Face narky landlord
- Rent money is “dead money”, you are effectively helping your landlord to pay off their mortgage and build their asset
- In a short rental supply market, it’s hard to find a good property and may need to pay higher rent
- Have to ask permission to do anything eg: re-paint, re-tile, landscape, change carpet

The final decision will always depend on each individuals’ situation. Renting is normally a short term solution and while buying is a long term commitment. If you are not ready to hold the property for one property cycle, for example normally every 7-10 yrs then you may face the risk of selling at wrong time of cycle. If you are a great investor in stock/equity (share) market and getting higher returns, then buying property may not be the right choice for you. If you are first home buyer, it will be less costly for you to enter the market.

What we know is from the recent Australian Bureau Statistics, Australia has one of the highest levels of home ownership in the world. Results from the Census of Population and Housing show that home ownership was at 70% in 2006, little changed over the past 40 years !