The rent versus buy debate is a long-standing one. There are those who say that renting is throwing money away while others point out that it allows you more expendable income in the short term. As for owning a home, some believe that it is a sign of financial stability while others see it as a money-guzzler.
While much depends on your individual circumstances, there are pros and cons to both scenarios.
When it comes to renting a home, the pros include:
- The chance to live in an area in which you might not yet be able to buy. This gives you a chance to experience that area and enjoy its benefits, perhaps with a goal to owning your own home there in the future.
- Flexibility. If you’re planning on staying in the same spot for a long time, renting is the perfect option. No strings attached beyond giving notice, as a tenant you will be free to relocate quickly and easily.
- Home expenses are less. As a tenant, you are responsible for your personal insurance and daily living expenses, including rent, but you are not responsible for household insurance, home loan repayments, or for major home maintenance. Caring for a house can be a costly undertaking. As a tenant, you will be able to save that money for another purpose while still enjoying a roof over your head.
The cons of renting a home include:
- Playing by someone else’s rules. As a tenant, you could lack freedom when it comes décor and use of the property. As it is not yours, you must abide by the rules set by the homeowner.
- A degree of uncertainty. You might have to move if the homeowner’s plans change or if your lease expires and they decide not to renew. This could be inconvenient and involve unexpected expenses such as moving costs.
- No return on investment. As a tenant, your rent payments will help to service someone else’s home loan and, even if you put money into the property, you will not see its value after you’ve moved out. A rental means none of the wealth creation opportunities associated with owning a property.
The pros of buying a home include:
- Appreciated value over time. Owning a home means a number of long-term benefits including the security of having somewhere to live, equity, and a chance to increase your personal wealth through investment in or sale of the property at a later date.
- Complete creative control. As a home owner, you are free to change the property, garden, décor, and fittings to suit your personal tastes and needs.
- You could put your property up for rent if needs be, creating an income generator that, at the very least, will pay off the home loan. Plus, you could save money in the long term as there are possible tax deductions related to income-generating properties.
The cons of buying a home include:
- A home is a major financial responsibility and it requires time, attention, and money to make it a worthwhile investment. Bond repayments and daily maintenance alone can cost you a fair amount.
- Once you own a home, you will have all sorts of expenses and debts that tenants do not have, including rates, taxes, and insurance fees – all for which you will be responsible.
- Mobility is a consideration. It is more difficult for home owners to quickly relocate or move into a new home. As a homeowner, you are responsible for that property so you would need to sell it or rent it out (which includes management) if you want to live elsewhere.
Like any major financial decision, the choice of whether to rent or buy will depend largely on your financial circumstances and your plans for your wealth today and into the future. While the above factors are worth considering, you need to look at your personal financial situation as an individual and make choices in line with that knowledge.
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