Buy or rent – how to decide which is best for you

Homeownership gives you a range of financial and wealth creation options that renting cannot provide. However, situations differ, and there may be good reasons why you should continue renting for now.

Benefits of homeownership

Some of the reasons why it is better to buy than to rent are:

• You will be investing in an appreciating asset, in your name, whereas if you, are renting you are helping to pay off someone else’s property.
• A property will help you build personal wealth in the longer term as the value will keep growing while the amount you owe on your home loan keeps decreasing.
• After a few years, you can use some of this equity to invest in a second property or pay for a university education.
• You can customise the property, which you can’t do with a rental property.
• You will avoid annual rental increases and future market fluctuations.

Benefits of renting

Before you decide to stop renting and buy a home of your own, there are some things you need to consider:

Do you need the flexibility renting offers? If you need to move often for work, it’s helpful to be able to pack up and go within a few weeks without having to sell or let your property.

Buying a property entails many expenses in addition to the purchase price. These include a deposit – usually around 10% of the purchase price of the property - transfer fees, rates, and taxes and ongoing maintenance and repairs. You must be sure that you can afford these or you will soon find yourself in financial difficulties.

It is usually cheaper to rent in a neighbourhood you like living in than to buy a home there. If you are renting a home that enables you to walk to work, the gym, and shops, for example, or so that your children can be close to school, a move to a different area might not suit you at present.

Moving to a cheaper neighbourhood that is distant from amenities will almost certainly entail additional transport costs. You need to take these into account, as well as the lifestyle changes you will almost certainly have to make.

If you have just moved to a new town, it’s helpful to rent until you decide which areas you might like to live in.

Other options

If you are determined to buy but want to stay in the same neighbourhood, it might be feasible to buy a cheaper home close to your rental property. Look for new developments where transfer costs are usually included in the sale price, and where you can expect to live for several years without major maintenance expenses.

To calculate what you can afford to pay for your own home, use one of the free online affordability calculators offered by most bond originators, banks, and estate agencies.

Courtesy of Sarah-Jane Meyer - Private Property