Renting vs buying: which is best? – On the Money with Jarryd Neves

Jarryd Neves
On the Money. Budding stock market investor Jarryd Neves, of BizNews, sends out an invitation to everyone who wants to ask questions about share investing – but is too embarrassed to ask. Write to [email protected] And tune in for his regular Monday column: On the Money

It’s a question many birds leaving the nest for the first time ask – should I rent or should I purchase property? Of course, most people have to rent for the first few years. Buying a property often requires a hefty deposit, something most young people don’t have when leaving home.

However, more and more young adults are choosing to live at home, meaning that when they do choose to live on their own, many have already saved up money – which could be used as a deposit. But, many young people are reluctant to buy property – what if they want to go and live overseas? Or travel? Many feel that property ownership may tie them down. Let’s take a look at the pros and cons of both.

Renting

Both have their plus points and drawbacks. Let’s start with the most obvious point, against renting – simply put, you’re paying off someone else’s bond. Every month, your hard-earned cash goes into paying off someone else’s investment when it could be paying off a bond for your own property. Over time, that property will most likely increase in value, making it a great investment.

As a young person though, you may find yourself in a cash-strapped situation. In a situation like this, a bond payment may not be the most affordable thing for you. Rent (especially if you’re splitting it between two or three friends) is far cheaper, especially if you want your own space and freedom.

What’s more, any repairs to the flat/house that you’re renting (as long as you didn’t cause the damage) is the landlord’s responsibility. Renting may be stress-free from this perspective, taking the worries of property maintenance off your shoulders.

Finally, with renting, moving (or even relocating to another country or city) is far easier, as you’re not tied down by a long-term bond payment. Selling a property is a laborious, drawn-out process that can often delay decisions.

Buying 

Perhaps the biggest plus point to purchasing a property is the investment potential. Many people who purchase their first property choose not to live in it, renting it out and paying off most of the bond from that rental income. What’s more, should the property value increase, so too does your personal wealth – should you choose to sell it one day, the likelihood of you turning it for a profit is high, as property tends to appreciate.

While purchasing your own property is often great and a moment filled with pride, the reality can often be stressful – especially for first-time buyers. Remember, that while you may be able to afford the property itself, you need to budget for repairs and maintenance. While improvements and renovations are worthwhile (as it only adds to the value of your property) repairs and maintenance (garden, pool, roof etc) can be costly and needs to be budgeted for. 

Speaking of renovations and improvements, that’s a freedom property ownership gives you. As it’s your property, you can choose how to decorate, paint and remodel the home (laws and regulations permitting, of course). As a renter, you cannot make alterations or change things in your home, as it’s not yours to change.

While rent can be seen as throwing money into someone else’s investment, plenty of people don’t understand the idea behind paying off a bond for 20-30 years. However, many financial experts urge would-be buyers to look at it as a form of saving. You’re paying off an investment that will, most likely, increase in value and provide you with a valuable asset in the years to come.

Which one? Well, it’s up to you

Both renting and buying, as I said at the beginning, have their pros and cons. When it comes to your personal preferences, it’s best to sit down with a financial expert and see, firstly, what you can afford and, secondly, what you want to do with your future. If you’re not sure whether you want to stay where you are (city or country), then perhaps buying a property isn’t the best plan for you – yet. Renting has a fuss-free element that appeals to many, and gives you the freedom to move with greater ease. However, it’s less secure than home ownership and more restrictive when it comes to personal touches. 

While many have nailed their flags to either the renting or buying mast, it’s not black and white – take your time exploring both options, and pick the one that suits you best.

Have a question about share investing or personal finance? Write to me at [email protected].

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