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Rent Or Buy? Which Is Better?
As per the 2011 Census, around 68% of all Australian homes are owner-occupied. It's the great Aussie dream, and more people are buying into this dream, so why not you? Homeownership is, however, not for everyone, and there are several reasons for this.
Homeownership is still an unattainable dream for many people owing to financial constraints. This is especially true in pricey property markets cities such as Sydney and Melbourne. The choice to purchase a home is undoubtedly a life-changing event.
Making sure you're prepared to make this jump by enlisting expert assistance is also essential. If you've saved enough and are confident that now is the time to purchase a home, it may be a good idea to enlighten yourself on the process. This article will delve into and uncover all you need to know to make the transition from renting to owning your own home. Please read on.
Renting Or Purchasing A Home: Which Is Better?
Eventually, the choice between renting or buying a home comes down to your personal preferences, long-term goals, and financial situation. If you have chosen where you want to reside for the conceivable future, have accumulated enough money for a deposit, and are in a pretty good financial situation, purchasing a house might be an excellent option for you. On the other hand, renting could be your best option if your job status is uncertain or if you are undecided on where you want to live in the future.
Pros Of Purchasing A Home
Purchasing a home is a lifetime investment. If you buy a home, it will not be a waste since all property is purchased after careful consultation with real estate professionals and family members. However, you must understand that buying a home is not a snap choice.
It will require you to take some time, a few days even, to carefully think about it. You must consider the budget, location, and future possibilities, among other things. Additionally, you don't purchase a house merely to live in it; you also buy it to serve as an investment portfolio. Below are some of the key benefits of purchasing a home:
Sure way to build equity
Instead of paying a landlord or company rent regularly, you could instead begin investing in your house equity. Remember, your home is like a long-term savings account. Your home's worth rises as you accumulate equity. You may also cash out or refinance a piece of your property equity if you get into debt later.
The best-case scenario is that you pay off a fixed-rate loan in 30 years and enjoy your retirement with significantly lower monthly expenditures. As a result, buying a home is unquestionably more appealing than owing landlords rent for your entire life. Additionally, the value of a property often increases with time.
Whether you opt to sell your house or downsize in retirement, you're likely to profit by just living in that house and waiting for the market to rise in value. Furthermore, when you decide to sell your home, the income from the sale may be eligible for a capital gains exclusion, allowing you to enjoy the income tax-free.
Stability
Are you aware that when the real estate market in the United States fell in 2008, Australia managed to stay afloat? Even though other nations, like Spain and Ireland, were affected by the 2008 market collapse, the Australian government was able to prevent property prices from dropping.
One of the bold decisions they took was to increase the number of subsidies available to first-time home purchasers. They upped the incentives from $7,000 to around $14,000 and about $21,000 for existing and new Australian houses, respectively. Many people were outraged by the large rise. Nonetheless, it is one of the primary reasons why Australian housing prices have continued to rise.
More control over the costs
When you rent, your landlord may decide to raise your rent, leaving you with no choice except to accept it or face additional relocation expenses. While home ownership comes with various costs, such as mortgage payments and interest rates, you will have alternatives to manage your finances through the numerous features offered on your home loan.
With a variable-rate house loan, for example, you may have access to a redraw facility or an offset account, but with a fixed-rate home loan, there's certainty as you know what your monthly repayments will be.
Enjoy financial security
As previously stated, your family's security when renting is dependent on the actions of landlords who could suddenly declare that they no longer wish to rent out their house. Moving is expensive, unpleasant, and may be emotionally draining, particularly if you are forced to relocate abruptly. On the other hand, when you possess your own house, you can rest easy knowing that you are in charge. And that is priceless.
You can remodel your home
Landlords are usually reluctant to allow renters to modify their houses, even if they intend to improve them. If you own your home, you have unlimited creative freedom - you may redo the rooms or even paint the walls in vivid colours without fear of being judged or stopped. Home upgrades often boost the value of a property. Therefore, if it is your home, every dollar increased in worth (due to your hard work) will be money in your pocket when you eventually sell.
The Drawbacks Of Buying A House
Most individuals need to buy a house so they can have a place they call their own. Few individuals do have anything negative to say about becoming a homeowner. The most significant obstacle to homeownership that people are well aware of is financing a house loan. Other disadvantages are dependent on a person's lifestyle. Let's look at the downsides of purchasing a property.
High costs of repairs and upkeep
Even with adequate upkeep, the property will lose its appeal in a few years and will require you to invest in extra repairs. For example, a roof coated with asphalt shingles may need to be replaced every 10-20 years, depending on the quality of installation, materials used, and climatic zone. Depending on the quality and upkeep, Wooden fences are likewise not indestructible and can only survive for about 14 years. Interior repairs are also inevitable and constantly impact your square footage.
Lack of flexibility
When you possess a home, you are not as flexible as individuals who rent an apartment. If you own a property, you cannot just flip the key and walk away since you are still liable for the structure. Homeowners may face problems in relocating, not only to another state but also within the very same city. If you discover a higher-paying job far away from your home and cannot sell it quickly, it may be uncomfortable and costly to commute for a couple of hours or more.
Potential defaults
While owning a home, you face several dangers, such as the potential inability to pay your taxes or mortgage or your neighbourhood shifting from good to terrible. This is especially true if your budget allows you to purchase just moderately priced real estate.
Many people may be concerned about the possibility of an increase in property taxes. If you stop paying mortgage interest for whatever reason, banks will not only take your property away but also your credit score and credit worthiness. This automatically means that you will not be able to obtain a bank loan later. Furthermore, every time your property loses value, you also lose money.
Advantages Of Renting A Home
Owning a house may be a lifelong ambition for many Australians, but it is not for everyone. Historically, families had to either buy, construct their own houses, or rent from someone else. Although it is not always ideal, renting has some benefits as well. Renting may make more sense for certain people due to their financial situation, among other factors. The primary benefits of renting rather than purchasing a property are outlined below.
No maintenance or repair costs
One advantage of renting a house is that there aren't any upkeep or repair expenditures. This implies that if you rent a home, your landlord is fully responsible for all upkeep, renovations, and repairs. If a component stops functioning or your roof begins to leak, you simply have to notify your landlord, who is obligated to repair or replace it.
Property owners, in contrast, are liable for all expenditures associated with house repair, upkeep, and remodelling. It can grow pretty expensive depending on the nature of the project (and when numerous projects crop up simultaneously).
No property taxes to pay
Renters do not have to pay property taxes, which is one of the critical advantages of renting vs. owning. Real estate taxes may be a significant burden for homeowners and differ by territory. Property tax costs can go into the hundreds of dollars in some places each year.
Although property taxes can be complicated, they are calculated using the anticipated property worth of the building and the quantity of land on which it is built. Property taxes may be a huge financial burden for homeowners as new structures get larger and larger.
Downsizing flexibility
At the end of their contract, renters can downsize to more economical living arrangements. This type of adaptability is beneficial for you if you are a retiree who desires a less expensive, smaller option that fits your budget.
Because of the expenses associated with purchasing and selling a home, it is considerably more challenging to get out of an expensive residence. Furthermore, if a homeowner has spent a substantial amount of money on improvements, the selling price may not cover these expenses, making them unable to sell and relocate.
Lower utility bills
Although home sizes vary, they are usually bigger than rental units. As a result, homes are more expensive to heat and have higher electricity bills. Rental properties often feature a more compact and efficient floor design than most, making them less costly to heat and power.
Cons Of Renting A House
Recognising the drawbacks of renting can assist you in making an informed decision for your family. Although many renters believe that renting is less expensive than buying, buying a home can be up to around 45 per cent cheaper than renting. Renting is a cost-effective option if you want flexibility or cannot manage up-front costs, but understanding the drawbacks can help you better weigh your choices and make an informed one.
Instability
If your family temporarily resides in a leased property, any offence entitles your landlord to evict you with a notice. Furthermore, if he wishes to sell the property, he has the authority to evict you. As the living cost rises due to inflation, so will your rent. Even flats in low-income housing programmes might boost monthly tenant rent in response to changes in a tenant's income or a utility review.
On the other hand, homeowners are permanent residents, and their families will not be evicted until their mortgage falls behind. Fixed-rate mortgages provide stability to owners who cannot afford to buy a property outright. Fixed-rate mortgages have stable monthly payments irrespective of your income.
So many regulations
Many flats do not permit considerable modifications or cosmetic alterations to their units, such as replacing countertops or painting the walls. If you want to buy a home, you can have complete freedom to design your area. You may remodel a room or even the entire building to increase the value or livability of your property. Some flats also prohibit smoking and animals and limit the number of persons on a lease. You may live with anyone or any pet if you only own your own house.
No equity
Monthly rent payments are made using money that is not invested long-term or saved. Contrary to common belief, home ownership is a solid long-term investment. It contains risk, like any other investment, mainly with the property values and house upkeep fees.
You can raise the worth of your house and property while reducing the risks involved with time. The property value improves if you select a place with a new building or expanding economic activity.
When you invest in home renovations, your home's worth rises. Whatever alterations you make to the residence if you rent boosts the landlord's property worth. If new businesses open near your flat, the property value and also your rent will rise.
How Do Rent-To-Own Schemes Work?
Rent-to-own (also known as rent-to-buy) schemes are leasing arrangements that allow renters to acquire a home at the end of a lease tenure for a predetermined sum. They make it simpler for you to jump aboard the property ladder as an aspiring homeowner.
They do so by doing away with the requirement to save a standard deposit and deferring the need to get financing from a financial institution or lending organisation. They also protect the buyer from future property price increases; this means the buyer may be able to get the home at a lower price.
However, if the market suffers a slump during renting, this might work against the buyer. The main disadvantage of rent-to-own agreements is that you do not own any part of the house until the final payment is paid. That, plus the fact that you still have to qualify for a house loan when the rental arrangement expires and you want to buy the property.
Rent-to-own plans have two parts: a conventional leasing arrangement and a purchase option. It is critical to get independent legal counsel before committing anything and to understand the regulations governing these programmes in each state.
Aspiring homeowners who want to buy a home through a rent-to-own plan sign a contract with a seller that gives them the right to purchase the home after an agreed-upon renting period, typically two to five years. These programmes often need a deposit, which a hopeful homeowner typically gets by applying for the First Home Owners Grant.
Participants pay rent (typically over the market average) throughout the rental period and a continuing cost for the 'choice' to purchase the home after the contract. Some rent-to-buy agreements require you to pay for extra expenses such as building upkeep, stamp duty, and insurance.
Potential Advantages Of Rent-To-Own Schemes
The purchase price is fixed in advance
One of the most challenging aspects of saving for a house while renting is that the real estate market will generally continue to climb, making it much more challenging to save the requisite amount.
In the instance of rent-to-own, the buying price is fixed in advance. This is the case so that purchasers may budget for and save for the needed deposit and arrange to finance with a lender.
You can examine the property before purchasing it
Another appealing aspect of the rent-to-own scheme is that you (or another potential) buyer may get to know the home as a tenant before committing to purchasing it.
Nothing is more terrifying than discovering after just a few weeks of ownership that your ideal house was not what you thought it was. Depending on your contract, you may be able to bargain your way out of it without being compelled to buy anything you don't want to.
Some of your rent may pay down the primary balance
Based on your agreement, particular renters may be able to begin paying down the principal debt, which is the goal of every mortgage holder. When that principal sum begins to fall, your financial condition improves dramatically. One reason for this is because it lowers your Loan to Value Ratio, which implies you'll pay less interest throughout the life of the loan.
Aside from this arrangement, a more straightforward option to buy a house is available; term deposits. Term deposits are an excellent alternative if you want to buy your ideal home but do not have fast access to a cash deposit. Term deposits are frequently flexible and straightforward to set up and are often less expensive than borrowing. Please contact an expert for advice on how to proceed.
Potential Cons Of Rent-To-Own Schemes
While the property market tends to improve in value over time, its value in the short term may not be as rosy. Property prices, like any market, are influenced by demand and supply and have been known to fall and rise.
You might be required to cover repairs
Whether you are a renter or not, depending on your agreement, you may be liable for paying for repairs and upkeep on the property. To avoid unpleasant surprises, always ensure that you completely understand your agreement.
Rent tends to be higher
Because they sometimes contain fees for the option to purchase, living expenses for rent-to-own plans tend to be higher than the median rental pricing for any specific suburb. Option to buy fees typically ranges between one and about five per cent of the buying price.
Tenants aren't on the title
Being a property owner involves a complicated set of legal conditions that differ from being a tenant. Holding the property title in your name provides some security for owners that tenants do not have, such as accessibility to any equity in the property. Renters are liable to evictions if they cannot cover their rent, while owners can use the equity if necessary.
Before entering a rent-to-own contract, you should understand what follows if anything goes wrong and the contract is cancelled due to the tenant's negligence or because the owner goes bankrupt.
You will still need to be approved for finance
Getting accepted for financing is one of the most difficult challenges for any buyer, and this is not different for those participating in rent-to-buy programmes. Make sure you've presented yourself in the strongest light for approval, and if you're unsure, try speaking with a mortgage broker that can assist you in getting everything prepared for the application.
You should also understand what happens if financing is not approved and where this leaves the deal with your rent-to-buy provider. If you've paid extra rent to have the chance to purchase, be sure you understand what occurs if your financing is denied.
Are You Finally Ready To Own Your Own House?
There are several advantages and methods to buying a house. Buying a house may also be a terrific way to create long-term wealth, among other benefits. If you are ready to leap into home ownership, simply contact a pre-purchase building inspection company to assist you in choosing the right house for you. If you are searching the market for a new residence or a fixer-upper, they can help you make the best selection based on your needs and budget.
