Many feel that renting a home is cheaper and more flexible, while some will argue that owning a home is a better long-term investment. In this article, we explore the perks of both renting versus owning a home, as well as the long-term costs.
Renting a home
In Australia, an average of 31% of households rent their home.
The main benefit of renting is that you can remain free from mortgage debt. In addition, you're not responsible for maintenance or repairs for the property.
However, there are some downsides such as you will be paying down someone else's mortgage. In addition, the landlord has the ability to determine how long you can live in the property, and what you can and can't do.
Long-term outlook
According to Domain's report, the average rental price sits at around $565 per week ($29,380 per year), so let's use that amount in our example.
- Let's assume the landlord's property costs $550,000 and they rent it out for $565 per week. The rent will cover the majority of the landlords mortgage.
- Now let's assume the home is tenanted for 30 years and the property grows at an annual growth rate of 6.8%.
- In 30 years, the tenant has paid $881,400 and the landlords property is now worth $3,958,223. If the landlord sells, they take the profit. The tenant will be left with their bond return and need to find another rental property. The rent cycle then continues.
Owning a home
In Australia, 66% of households own their home.The main benefit of owning is that you are essentially paying your own mortgage, not someone else's. In addition, your home can grow in value, building you equity. You can also live how you want - have pets, hang pictures, paint walls!
However, owning a home may come with extra financial commitments, such as managing mortgage debt. You will also be responsible for additional costs such as maintenance, repairs, home insurance and council rates.
Long-term outlook
According to CoreLogic, Australia's median home value had an annual growth rate of 6.8% over the past few decades. At that rate of growth, national house values could rise to $2.9 million by 2043!
- Let's assume you buy a home for $550,000 with a 10% deposit and 5% interest rate. Your repayments will be around $671 per week.
- Now let's assume your home grows in value with an annual growth rate of 6.8% over the next 30 years
- In 30 years, your mortgage has cost you $880,036 and your home is now worth $3,958,223. You can now live mortgage free, or if you decide to sell - you take the profit. Alternatively, you could use the equity to buy an investment property or to guarantor your kids home.
Points to consider
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Your home awaits
If you would like to stop renting and achieve home ownership, we can help. Find out if you qualify for a new home purchase today.
