Rent vs. Buy: What’s Better For You?

Choosing between buying and renting a property can be tough. The decision will depend on a range of factors unique to your financial situation, such as where you live, how secure your work is and how much you have saved towards a deposit, as well as timing and when you think is a good time to enter the property market.

In the end, the best choice for you should be the one that saves you the most money over the short term and still allows you to follow your property-ownership dream at the same time.

Listed below is a list of the pros and cons of buying and renting property in Australia, some of which you may not have fully considered but could influence your decision.

Buying a property

With a mortgage, you can see your money going to pay something off, regardless of how slow and painful that process may be. Unfortunately, things are never so simple and getting a deposit together can feel like a Herculean task for a first home buyer, especially if you’ve only been in the workforce for a few years. However, buying seems like a no-brainer if your mortgage repayments would equal to or less than what you currently pay in rent.

Pros of buying

Building wealth. Buying your first property means acquiring an asset that should appreciate over time and allow you to reinvest the equity you have built up through repayments and capital gains into another property or investment.
Greater stability and security. Mortgage payments fluctuate, but owning your home gives you far more security than renting, where you are at the whim of a landlord who may throw you out once your lease expires or decide to bump up the rent to a level that is no longer manageable within your budget.
Forced saving. Saving up for a deposit and paying off a mortgage gives you a goal to aim towards and requires discipline. Homeownership is, in effect, a forced savings regime and especially benefits those who are not good savers.
Sense of satisfaction. Owning your own place gives you more than just stability and security — it should give you a sense of achievement that you have been organised enough to save for a deposit and have sufficiently stable employment to make regular mortgage repayments.

Cons of buying

Upfront costs. Buying a property is an expensive undertaking. First, there’s the deposit, which could be up to 20% of the value of the property depending on your circumstances. Then there’s stamp duty and legal fees, all of which add up, especially if you’re a young first home buyer.
Ongoing expenses. You may be shocked when you see how much extra you’re required to pay for things such as maintenance, strata fees if you live in an apartment block, and council rates, all of which are the landlord’s responsibility if you’re renting. These all come on top of your regular mortgage commitment, which could cost you more with each payment if interest rates continue to rise the way they have over the past six months.
Decrease in value. Buying property in Australia is generally a sound investment but, like all markets, there are swings and roundabouts in the real estate sector, and your property could easily decrease in value, possibly for a period of years, depending on where and when you buy.
Foreclosure risk. If your property does decrease markedly and you have a life-changing circumstance that forces you to sell, you could end up seriously underwater in such a scenario.
Opportunity cost. Having most or all of your money tied up in one property in one location is risky. It also means you could be missing out on better investment opportunities that crop up over the years which you otherwise may have been in a position to benefit from.

Renting a property

Renting is often described as ‘dead money’ or money thrown away because you basically fork out hundreds if not thousands of dollars fortnightly or monthly for the privilege of having a roof over your head. However, renting can be advantageous if the cost of rent is less than your expected mortgage payment and you can save the difference and put it towards a future deposit or a ‘rentvestment’ property.

Pros of renting

Affordability. It’s not always the case, but renting is usually cheaper than paying off a mortgage unless interest rates are very low for an extended period. This obviously depends on when and where you rent, but renting generally allows people to live in a nicer area of the city than if they had bought.
Not locked into a mortgage. Renting means you are free of any long-term financial commitment so you can just move elsewhere once your lease expires, usually after a term of 12 months but sometimes longer. This offers greater financial freedom and flexibility in the short term.
Ability to save money and/or diversify investments. As a renter, you can save the extra money you would be paying on your mortgage and potentially reap higher rewards through a more diversified investment portfolio.
No upkeep. Maintaining the property is not your problem — your landlord is responsible for repairs, fees and home insurance, so you only have to pay the rent whenever it falls due.

Cons of renting

Lack of security. Renting only gives you a certain amount of security because you can be turfed out at the whim of your landlord once your lease expires.
“Money down the drain.” It’s an old adage, but it remains true that by renting you are not paying anything off or building any wealth, so you have no investment potential. You are, in effect, helping your landlord to pay off their mortgage.
No fixed price. Your landlord can bump up your rent at the end of your lease period, which means you have very little price certainty or security. This can be particularly insidious during a period of high rental demand in your area.
Living with flatmates and pets. Last but possibly not least is the fact that you may be forced to rent with flatmates who make your living arrangements unbearable because you can’t afford to rent a place on your own. You may also be restricted in what pets you can keep on a rental property.

Choosing the best option for you

The great Aussie real estate debate about buying or renting will likely continue well into this century and beyond. Purchasing a house to live in is a highly emotional financial decision with no shortage of things to take into account.

Each individual’s circumstances will be different. The best option is the one that takes as much of the above into account while paying close attention to the state of the market where you want to buy or rent.

Before making a final decision, it’s always a good idea to talk to an expert such as a financial planner or mortgage broker about your financial goals and the specifics of your particular case.

About the Author

Alan Hartstein

Alan Hartstein has worked in publishing for over 25 years as a writer and editor across broadsheets, tabloids, magazines, trade publications and numerous forms of digital content. Alan was initially…

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