When it comes to the decision of buying a property versus renting one, there are a few factors you need to consider. On the one hand, buying a property certainly has significant immediate costs, but on the other, renting means you’re effectively paying off someone else’s mortgage. So if you’re weighing up which option is right for you, consider both the short and long-term pros and cons of both.
One day, you’ll own your own home
The obvious pro of buying versus renting is that once your mortgage has been paid in full, you’ll have a home that you own. This means you won’t have to consider the cost of renting into your retirement plan. If you plan to sell your home after retirement, there’s the potential that the property has increased in value, and you’ll have more cash to put towards your nest egg.
You can change the home to suit your needs
Even before you pay off your mortgage, the house is still yours to change as you see fit. This means painting, fencing, landscaping and large-scale renovations are up to you. This gives you a certain amount of flexibility too, if you buy a home in an area you love, but it’s too small, or in need of work, then you can always address these issues down the track. Whereas when renting, if the home doesn’t fit your needs in the future, you’ll be looking to relocate to another rental property.
There’s definitely a certain amount of security that comes from owning your home versus renting it. For instance, no one is going to tell you you need to vacate because they’ve decided to sell the property or move back in themselves. There’s no risk a rental agreement won’t be renewed for any reason, or that certain conditions will change that may impact your lifestyle.
This security can make it easier to plan for your future and consider things like pets and children without the risk that your living situation may dramatically change through no fault of your own.
It depends on your location, but across the globe one thing about home ownership is generally the same, and that’s the requirement of a big lump sum up-front as a down payment or deposit. This means you’ll need a hefty amount of cash just to enter the property market.
There are other initial costs too depending on your country, like taxes, property transfer tax, solicitor bills and title fees.
The cost of upkeep
Unlike renting, the costs associated with the upkeep of your home falls to you. Depending on the age and state of your home, location and whether or not you have a free-standing home or apartment/unit will all determine how much you may be spending in maintenance costs over the course of owning your home. It’s best to factor this into your budget before committing to a mortgage.
Your return on investment is not guaranteed
Of course it depends on your area and how this area fairs in the long-run, which can be pretty hard to predict without a crystal ball, but the costs of owning your home versus how much of a return you’ll receive if you decide to one day sell might mean you could make a loss at the end of the day.
Other things to factor in here are how long you plan to be in the home, how much work is needed on the property (could you see yourself taking out additional loans to cover things like renovations?), has the area experienced recent growth? What other long-term factors could impact the neighbourhood positively or negatively?
Cheaper in the short-term
In a lot of areas, the option of renting property is usually going to be cheaper, at least up-front if not week to week, than paying off a mortgage on the same property. A damage deposit, which is equal to half a month's rent, a pet deposit and a key deposit are held with interest payable annually, as established each January 1st for the year, and interest payable to the tenant.
This also means costs associated with owning a home, like land/property taxes, building insurance and maintenance are handled by the landlord.
Another plus is the ability to rent a home in a desirable suburb, close to transport, offices, entertainment and other lifestyle amenities as a rented home in these areas is usually within most peoples’ budget versus the sale price of a home in the same area.
One of the obvious pros to renting is the flexibility. That’s the flexibility of not being locked into a long-term commitment, as you are with a home you buy. At the end of your lease, you’re free to move, or stay on if it suits. When it comes to selling a property you own, you’re faced with the prospect of selling the home for the price you need, you’re up for the costs associated with this, and you’re at the mercy of current market conditions.
This kind of flexibility allows you to move jobs, travel or simply change your mind about an area with the opportunity to move relatively quickly.
In some areas, particularly popular ones, you may even be able to break your lease early if the property manager/landlord is able to find a replacement tenant easily, or for a pre-determined fee.
When it comes to your monthly expenses as a renter, your budget can be more stable than that of a mortgage holder. Without fluctuating interest rates, taxes, and maintenance costs to worry about, and the cost of rents generally only changing upon renewal of some leases, you can potentially have more financial stability than a home owner.
The home will never be yours
It’s true that at the end of day, the home you’ve been paying to live in will never be yours, whereas the mortgage repayments of the home owner will mean the home will one day belong solely to them. Whilst renting gives you flexibility, it can also mean that at a time when you’re looking to settle down, you don’t have the stability of a home of your own.
You won’t be able to personalize your home
Things like renovations and home improvements usually can’t be done on your rental property unless negotiated with the homeowner and even then, you might find that some things will be at your expense or will mean that your rent could potentially increase. It could also mean that things like pets aren’t permitted, and you’re restricted to looking for properties that will allow animals. If pets are permitted it required a pet deposit.
The look and feel of the home will usually not be up to you, and if you’re looking for extras, like air-conditioning or ceiling fans, or features like security screens, your landlord may agree to put these in only if you agree to a higher weekly rent amount.
Renting long-term has its pitfalls
If you decide to rent until retirement, unlike a homeowner who very well may have paid off their mortgage and will now have no ongoing loan repayments to make, you will need to be able to afford rent even after you leave the workforce.
Depending on your other investments, and how well you’ve saved for retirement, it may be feasible to continue renting for life. But if you’re unable to continue renting in your area during your retirement years, you may only be left with the option of relocating to a less desirable area or a far more modest home.