According to a 2016 census, as much as 67% of the population are homeowners. That’s not surprising as most Australians dream of owning their own home.
However, for some, it is not possible and others need to choose between buying a house and being a life-long renter. It can seem like a difficult decision, you need to consider all your options carefully.
Of course, if you’re lucky enough to win a house in a lottery, then the decision ends up being made for you. After all, you’ll have a home without having to spend anything other than a few dollars on a ticket.
Financial Security
The most obvious benefit of buying a house is that one day you’ll own it. At this point, you will no longer need to pay rent or a mortgage. Your available capital will instantly improve, allowing you to boost retirement savings and potentially enjoy a higher quality of life.
Of course, owning your own home also means that it can’t be taken away, that’s financial and emotional security.
Don’t confuse financial security with value. Most people expect the value of a home to increase. However, there is no guarantee of this. Financial security means you have a roof over your head without having to pay for it monthly. It doesn’t mean you’ll be able to move or afford the retirement you have always dreamed of.
Costs
It should be noted that the cost of a mortgage is often cheaper than renting. However, when you own the property you will need to spend on maintenance. Alongside this, many people like to improve the look of their home. This all costs money.
In short, while the mortgage is likely to be less than the rent, the cost of looking after your home is significantly more. When you rent the landlord needs to take care of all the repairs and maintenance.
Renting means you have more control over your costs and expenditure, there are no unpleasant surprises.
Rental Increases
Of course, it’s not all plain sailing when renting. You will have regular rent reviews and little control over how much the rent is increased by; that can affect your budgeting and the increases can be surprisingly steep if you are living in a popular area.
Duration
If you’re purchasing a house then you should be prepared to stay in it for at least the next five years. Staying anything less makes it hard to sell it for enough to cover your fees of buying and selling. The property probably won’t have increased that much in value in a couple of years.
If you’re only planning on staying somewhere for a short while, renting is a better option.
The Bottom Line
There are long term financial benefits to purchasing a property. However, as these are long term you need to think carefully before committing to buying, it simply may not be the best time for you. There is nothing wrong with being a life-long renter.
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There are a few more benefits to being a home owner. If times get tough you can rent out a spare room or two which a landlord might not allow. You can retreat into one bedroom with bath and rent the whole house to someone else who will be responsible for the utilities. You can do Air B N B. You can rent out your garage for storage. You can pet sit a few dogs at a time for extra income which landlords most likely won’t allow. If you have a yard you can tear up part of the lawn for a vegetable garden and save money growing your own produce. If you grow a lot of vegetables you can sell your excess. You usually have more storage space in a house so you can buy in bulk things like toilet paper and other non perishables. There are positive tax consequences to owning your own home. A house can provide extra income in so many ways while an apartment limits your ability to make money from your home.
As a landlord, I value good renters. They are a valuable commodity. A renter who always pays on time, takes good care of the residence, etc. is a blessing. I have often skipped on rent increases for high quality tenants. If you are one of these tenants, talk to the landlord at renewal time. See if they will give you a break, keep the rent the same or lower the increase. A vacancy costs me rent, plus the prop manager takes a month’s rent, plus repainting…. So keeping a good tenant is much more profitable than trying to squeeze every penny out of a tenant.
The largest benefit to renting is the freedom to move due to job changes, etc. One may also be able to rent closer to work than buy, which can save time and money.
You never really own your home. Try not paying the ever increasing property taxes.
That is actually a fallacy in my opinion. Do you think landlords actually pay the taxes? Of course not, taxes are built into the rent. And yes I am a landlord.
As to home ownership not offering retirement security that is another fallacy. As a favourite customer of mine once said, “It’s not what you ‘own’, it’s what you have paid for”. Buy a modest home with a short mortgage term and pay it off. Don’t buy with a 30 year term, go for 15 and pay it off. My father in law told me when I was 24 to do this and said it would be like a 1,000 dollar a month pay raise. This was back in 1981. His words, “When I was paying off my house I was always broke. Now? I always have a hundred dollars in my wallet”. I followed his advice and it allowed me to retire at age 57. My 37 year old son has two homes, one rented out and the other with a basement suite housing a great tenant. The rents cover almost all his mortgage costs and his homes will be owned free and clear by the time he is fifty. He works full time and chose to put extra earnings into a down payment on properties. One home has 3 acres on a great fishing river and the other is in town with an ocean view just one block off the beach. He is a tradesman like his Dad. 😀
The cottage I rent out helps a friend of mine get by. He was a renter and was evicted at age 70, 12 years ago. He had nowhere to go and his retirement money was barely okay. I built him a cottage of 640 sq feet and rent it to him for $400 per month these days, about the going rate for a trailer pad at the local RV park. His rent is enough to pay our taxes and insurance….he’s happy and I’m happy with this win win arrangement. The cottage is post and beam and built for a senior with all required safety arrangements. He knows that if our taxes increase his rent will as well, but so far his rent has been frozen for several years.
Thanks for the tips, Paul. My only disagreement is with taking a 15 year loan over a 30.
With interest rates so low, if you want to pay off the loan in 15 years, you can still take the 30 year loan and increase your payments to pay it off in 15 years; this gives you the added flexibility of being able to lower your payments back to the 30-year mortgage level if you run into hard times down the road at very little additional cost. For those who are interested, I explain the math here.
I agree with you, MaryAnn. Thanks to property taxes, every homeowner is renting their place from the government – including “homeowners” who have no mortgage.