Friday, July 25, 2014

To rent or not to rent?

That is the question everyone is asking after the Reserve Bank of Australia (RBA) released a statement last week saying if property prices slow, 'the average homebuyer would be financially better off renting'.

And it's got everyone talking.

Like any debate, there are always two views of the world. 

On one side, a number of people are mounting and publishing arguments pro renting. The old saying that 'rent money is dead money' has been fired back at; with some saying interest payments on home loans are no different. This camp is arguing that on top of paying huge sums of money to your bank over the life of the loan (usually 25 years), there are also add on costs such as stamp duty and legal fees incurred. The benefit of not having to worry about the uncertainty of large expenses home owners face appeals to renters as well. Significant maintenance items, such as a new hot water system or brand new roof, can come out of the blue and when you're a tenant, this falls cost  squarely with your landlord.

They believe other investments, such as shares, are a wiser alternative and that you are better off in the long run choosing to remain a renter rather 
than purchasing a home.

The other side?

The pro buying camp maintains home owners are the ones who come out ahead financially without a doubt. Any contrary argument has been quickly shut down by property reporters who claim there is a big ticket item that those in the other camp are forgetting – long term capital gains. 

From my experience, and growing up in a family who lives and breathes residential real estate, I have to agree with the latter. There are so many other benefits, some non-financial, that come with actually owning your own home, including: 

1. Increased Certainty. You are not exposed to the uncertainty of renting, that is, whether your landlord will chose to renew your lease at the end of the term or whether they will increase the rent... Moving every twelve months isn't much fun and certainly not ideal if you have a young family or a lot of belongings.

2. Flexibility. You have more flexibility to improve or change your living environment when life or family events happen. Adding on a new room or updating the kitchen are options that are simply not available to tenants. 

3. Leverage. There is the ability to use equity accumulated in your home to add to your property portfolio and expand your investment opportunities. 

4. Security in Ownership. Having a place to call home later in life is a really important factor for most home owners. They see huge benefit in the financial security of owning their own assets which can be disposed of down the track if needed.

The RBA speaks of the 'average homebuyer' being better off. From my experience taking the time to educate yourself on the market, speaking to the right people and ensuring the fundamentals stack up can put you miles in front. Being realistic about future capital gains is really important when looking to purchase a home and shouldn't be overlooked. 

As a tenant myself for over six years, I have been on both sides of the fence. But when looking at the different approaches, if you are in a financial position to buy property and the right opportunity comes up, I believe you should make the most of it.

Adelaide is the least volatile residential market and we are very fortunate to live in a city that is the most affordable in the country. Our state provides great buying opportunities and at Toop&Toop we are here to help steer you in the right direction.

Regards,
Suzannah Toop

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