With house prices surging and somewhat unpredictable at the moment, many people simply give up at the thought of ever buying a home, especially in Sydney.
But what is the alternative? Renting is hardly cost-effective either: in doing so you’re essentially paying off someone else’s mortgage – which is not exactly worth rejoicing about either. You know the saying: rent money is dead money.
So, which is better? To buy or not to buy? Let’s take a look at the pros and cons.
What are the benefits of owning a home?
Home ownership comes with many advantages. For one, homes typically increase in value (unless you buy a real lemon), it provides a roof over your head and you may be building equity. This sets you up with a nest egg for the future – something to leave to your children, or something to sell and put towards retirement.
How many years is a mortgage loan?
Of course, you will be locked into a mortgage for the better part of 30 years, unless you pay it off sooner, which is definitely doable if you follow a few repayment guidelines and tips, many of which you’ll find on our repayments calculator page.
What is a rentvestor?
Another way to benefit from owning a home is to buy an investment property. This way you can rent where you want to live and buy where you can afford. This rent and invest strategy is known as rentvesting and it’s becoming more popular. It’s also a way for first home buyers to get a foot on the property ladder.
Buying and selling an investment property means you can wait and hope that real estate prices increase over the long term. If you charge less rent than what you are making in mortgage repayments, the net loss can be used as a tax deduction, which is known as negative gearing or having a negative cash flow.
Chief executive officer of the Real Estate Buyers Agents Association of Australia (REBAA), Rich Harvey says it’s better to be in the market than to rent forever. “You can’t save your way to wealth. If you’re paying rent and that’s your only interaction with the property market, you’re going to be renting your whole life,” he tells uno, adding rentvesting is simply renting where you work and buying in another area. “If you’ve got a rental property that you’re renting to someone else, you’re in the market.”
Harvey advises people to start young and start early. “Property for me is like a forced savings program,” he explains. “If you don’t spend your money on property, you’ll probably spend it on something else: you’ll buy more holidays, a fancier car, more clothes – which are all depreciable items which decline in value the minute you buy them.
“Sure we need cars, we need clothes, but you have to balance that out with saving for the future.”
Where should I invest?
Cracking the investment property market can be just as hard as finding a property to live in. It usually depends on your goals and how much you have to spend. There are a few rules of thumb that will serve you well:
- Try to stick with capital cities: capital cities tend to have a large population, better infrastructure and more jobs, which can equate to higher rental demand.
- Diversify your search: Because markets grow at different times, buying in what was a property hot spot last year may not be the best option this year.
- Choose desirable neighbourhoods: If you wouldn’t live there, why would anyone else? Things like good quality schools, a low crime rate, good public transport options, a stable job market, shopping hubs and good amenities will appeal to renters.
What are the advantages of renting a house?
Renting a home comes with advantages too, of course. You won’t have to save for a deposit, you can avoid paying maintenance costs and you don’t have to directly worry about things like interest rates rising (unless your landlord puts your rent up) or property prices decreasing.
Is it cheaper to rent an apartment or buy a house?
When it comes to buying or renting, many people compare like for like. In other words, if you adore renting a two-storey terrace in Paddington, then you’re going to want to buy a two-storey terrace in Paddington, right? And that could be where you realise the cost of buying property is out of your league.
But when it comes to buying property in Australia, a better way to look at it might be to compare apples and oranges. While you might not be able to afford a two-storey terrace in Paddo, you might be able to afford an apartment in Paddo – or a terrace in nearby Darlinghurst. A growing trend here tends to be rent where you want to live; buy where you can afford.
A lot of people have to make sacrifices when they buy property and scoping out what are known as ‘bridesmaid suburbs’ could provide a great way to enter the market.
But, while it might be cheaper to rent your whole life in some places in the US and Europe, renting an apartment probably does work out slightly better than buying a house in places like Sydney. It depends which way you choose to look at things though. And there are certainly ways to buy a property as an investment in a different area to where you want to live so that you can continue paying off someone else’s mortgage while also paying off your own.
Keen to get started? Why not check your borrowing power quickly - you might be surprised what you can actually afford.
What sort of loan do I want?
The type of loan you want will differ depending on whether you do buy a property to live in or decide to invest. When you search online with uno, the online mortgage broker, our technology will filter through thousands of home loan options from more than 30 lenders to find the ones that will best suit your needs.