Buy or rent

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Rent is sometimes called 'dead money' and it is tempting to consider putting that money towards your own home rather than someone else's mortgage. If you're just getting started in your study, career and life you may find renting is the clear option.

Only a small proportion of young Australians find themselves in a situation where they have the money and lifestyle that will support them while they purchase and pay for a property.

According to the Australian Bureau of Statistics, the percentage of first-home buyers in 1999 who were aged 15 to 24 was just 12.7 percent.

However, if you're starting to wonder about the benefits of buying, there are some online resources to get you started on a plan for the future.

Ask around

The most obvious factor in your decision is money. Although property is often used as a way of investing or making money, it's important to know that you can afford to keep paying back a mortgage even as the economic climate and your interest rate changes.

Buying a house is often more than just buying an asset. It can give you a sense of identity within a community as well as a feeling of independence.

Using your personal networks is a good way to get the inside story on the benefits of renting or buying at different points in your life. Ask family and friends about their experiences before and after they purchased their first home.

Make a comparison of costs

To make an informed decision, you'll need to gather lots of information. This could mean putting together a table that compares the costs of renting with buying in the suburb where you want to live.

Don't forget to factor in variables such as rising interest rates, mortgage insurance and legal fees when you're adding up the costs of purchasing property. Many web sites published by banks or mortgage brokers contain calculators and tools for this purpose.

Why rent?

There are lots of reasons why people choose to rent rather than buy a property:

  • Low financial risk - the main financial obligation you have when renting is your bond and rent for the period of the lease. If you can't keep up your mortgage repayments, you 'default' on the loan and the lender may then repossess and sell the property, and sue you for the balance of the loan
  • Investment - savings from lower rental rates can be channelled into term deposit accounts, shares or managed funds
  • Flexibility - as a renter it is easier and cheaper to move when a property becomes unsuitable. If you want to travel or try other locations renting may be the best fit to your lifestyle
  • Lifestyle - your favourite suburbs may be affordable to rent but completely out of range for buying
  • Maintenance - the landlord is responsible for paying costs for major repairs and therefore your living costs can be stable
  • Freedom - most mortgages involve a long-term plan to pay off a large sum over at least 20 years, and properties tend to increase in value over a period of at least five years

Why buy?

Here are some reasons why people choose to buy rather than rent a property:

  • Security - if you are signed to a short-term or periodical lease, you may be worried about the threat of having to leave the property with relatively short notice or paying rent increases
  • Control - you get to decide what is fixed and how the property is decorated without relying on a landlord
  • Scheduled saving - regular mortgage payments can be a way of establishing a savings pattern
  • Equity - as you gain equity or the balance of ownership in the property, this will help you with future financial planning
  • Privacy - you can decide who has access to enter or alter your property, without visits from real estate agents and landlords

Links

Land.vic.gov.au
Access information for buying, selling, renting, building or renovating a property. Sections include links to forms, financial advice and relevant Victorian law.

Consumer Affairs Victoria - Renting
Fact sheets and downloadable information targeted to homebuyers and renters in Victoria. The section for home buyers and sellers includes useful areas on finance, real estate agents and choosing a loan.

Your Mortgage - Rent or Buy
Type in amounts to calculate and compare costs and explore the links to research the implications of stamp duty, interest rates and mortgage insurance.

Realestate.com.au
Real Estate Calculators on the site cover savings, borrowing and renting compared with purchasing. Make use of the property and rental search functions to create a list of sample leasing and buying costs.