Buying or Renting? Which one is for you?
21 February 2017
To rent or to buy? Which one is for you?
If you are one of the 41% of adults renting a home maybe it's time to think about the long term effects renting will have on your finances and future prospects.
But like with everything else in life, there are pros and cons and two sides to the story, so before making a decision to purchase or to continue renting let's look at both.
The advantages of buying a home:
- Owning a home offers the long-term benefits of security, equity and potential growth in personal wealth
- The value of a home will appreciate over time and if you decide to sell, you can earn a profit off the sale
- When you buy a house it becomes your legal property, which allows you greater freedom in its use without restrictions often enforced by a landlords
- Being a homeowner allows you creative control of your property. You can alter the property, including décor changes, landscaping and renovations, to suit your needs and your style
- You have the option of buying to rent which enables you as a homeowner to generate income from renting out your property. This income can be put towards the home loan
- Being a homeowner who ensures repayments are made on time can improve your credit profile. Not only will you have a large investment to your name, but paying your monthly bond repayments on time increases your credit score
- You have the option to refinance your bond amount should you wish to withdraw a large amount of money to pay for major purchases
- There is an opportunity to save money in the long term as there are possible tax deductions related to income-generating properties
The disadvantages of buying a home
- Being a homeowner comes with huge financial responsibility including bond repayments and regular house maintenanc
- There are additional costs to homeownership and these usually include rates, taxes, insurance, and maintenance for which the homeowner is responsible
- A homeowner runs the risk of not making any profit through resale. This is often caused by economic factors such as a recession or high interest rates, or simply through a particular location becoming less desirable
- A homeowner has less mobility when it comes to being able to move home than a Tenant who rents on a short-term basis. A Tenant can leave a property after fulfilling the notice period, which is usually one month. However, a homeowner is likely to be dependent on selling their home before being able to buy a new one.
The advantages of renting a home
- Renting a property allows more flexibility than owning a home. This is ideal for those who could be faced with sudden changes such as a job relocation. Renting requires no long-term commitment from a Tenant, and is the best option if you don’t intend on staying in one place for a long time
- As a tenant, there is the possibility of living in an area in which you could not afford to buy
- Moving out is easier for a tenant than a homeowner as there is no stress of finding someone to take over the lease, or finding a buyer to purchase the property as this is the responsibility of the homeowner or landlord
- The only insurance required by a tenant will be to cover the contents of the home, while all maintenance work on the property is for the homeowner’s account, as is homeowners insurance
- After paying rent, a tenant may have additional money which they can use to invest elsewhere, whether it is saving towards buying a house or investing in the stock market, and need not worry about putting additional funds into a home loan
The disadvantages of renting a home
- A tenant is bound by the rules of the lease agreement, which can impact the freedom to use or renovate the property.
- You cannot make changes to a rented property without the consent of the homeowner.
- When renting, you will often have to deal with a Rental Agent who will then be the liaison between you and the homeowner. This can result in issues taking longer to resolve since there is a 3rd party involved
- Renting offers no wealth creation or return on investment since the property will never legally belong to the tenant, and instead, the tenant is paying towards the homeowner’s home loan
- When renting a property, you will have no control over annual rental fluctuations which are directly affected by inflation
- There is no guarantee that a lease will be renewed when it expires.