This is a topic that comes up a lot. In my own life, in the lives of my friends and family and in the questions I get asked on the more ‘financial’ videos on my youtube channel. Should you rent or buy?
For me the answer is very simple and obvious. Do what best meets your priorities and needs. So perhaps the reason that people even ask this question at is is that:
- They have pressures from society/family etc that tell them they should be doing something a certain way. Generally this is along the lines of they should own a home as that is what grownup people do. Or alternatively fear-mongering that if they don’t get in the property market now then they’ll end up financially behind and that they might regret this later in life especially if they then want to own a home.
- They haven’t thought deeply enough about what their personal priorities and ideal lifestyle actually is.
- The statement that rent money is dead money
So let me firstly address these 3 ideas. For the #1 reason that most people think they should own a home (or not own a home, although the first is more common) is because people and society tells them it is a requirement, but you don’t have to listen! Your worth and status is not dictated by the things you own. In fact if it is just to impress people that you are thinking about owning a home then know that probably you could afford to rent a far nicer home or one in a better location than you could afford to buy. In terms of ‘needing to get into the market’ then this is also a fallacy. It is a really good idea to invest savings for the future, but property is only just 1 way to do this an often not the best option especially for people with not a large amount of money on hand or who plan on living in one home for the rest of most of their life. You can invest in shares, you can in vest in shares of companies that invest in shares. You can also invest in an investment property that you personally don’t live in. There are many different options with different pros and cons but really all of these things are something to look into from reliable sources of advice (eg. Dave Ramsey) and mainly only after paying off debts you might have. Ultimately if you choose to buy or rent a home, it should be because you want to, and it fits with your lifestyle goals, not because you feel pressure to do so from outside.
For #2 then you need to spend some time really thinking about what your goals in life are. And if you don’t know that is actually fine too, but in that case DO NOT BUY because that is making a long term choice that will reduce your options in the future when you do know what you want to do. Even if you don’t know if you may or may not be happy renting forever or will want to buy in the future, then paying off debts and then saving up a nest egg is a really good idea. It could end up being your future home deposit, or it could just be a great asset of savings for you to kickstart some other kind of dream like travel, starting a business or just retirement. Saving is never a bad thing even if you don’t know what it might be for right now.
For statement #3 that rent money is dead money, then the logical counter to that is “well so is interest paid to the bank”. The reality is unless you have cash to buy a house and do not need a loan you are going to be spending money on your accomodation somewhere that doesn’t go into capital. People also often underestimate the costs involved in owning a home. When you rent, maintenance is covered in the amount, when you own you have to pay for it all yourself, plus rates or body corporate. The other thing is that maybe you are spending more renting than you could buying, but that that money is purchasing you a certain lifestyle you desire. And that is fine too. The point is to be intentional in your choice. Money buys you freedom, and what that freedom looks like is up to you.
So Why Might You Choose to Buy Over Rent?
- You know for sure you want to live in the same location for a long time. At a minimum 7 years is often the recommended figure as it costs a lot of money to buy and sell homes and you need that amount to be covered by an increase in value of the property. Bare in mind though there is no guarantee a property will go up in value, and the risk that it won’t increases with the shorter amount of time you wish to live in a location and hold that property. Remember you do always have the option to rent out your place if you needed to move, but that might come with extra costs in hinderances and not every home you might want to own would make a good rental so it is better not to make this this first choice strategy unless you’ve done a through research into the rental potential of a particular property and associated costs.This is the most important factor and everything else listed below should only really apply if this first requirement is met.
- Your interests include things not easily done in a rental. People who love gardening, renovating etc. These things may be less easily done in a rental. Bare in mind though if this is your only reason to want to own but none of the other reasons apply then those interests may be better left for the future when your circumstances change or find other ways to satisfy them such as gardening in containers or renovating a caravan.
- It is much cheaper to buy than rent. This one depends on where you live and other factors like interest rates, likely maintenance costs (it will cost less to look after a newer home than an older one usually). Bare in mind interest rates do not stay the same overtime unless you get a fixed loan. However rental prices also do not stay the same although the two are not necessarily linked in the same market. So if you want to stay in one place for a decent amount of time and you have worked out it is cheaper then go for it!
- You don’t like change. Personally i found the idea of being potentially forced to move at the end of a lease because say the owners wanted to move back into their home or the rent went up too high very stressful. I really liked the certainty of knowing where i was going to be living year to year and felt happy committing to the long term to a property. Bare in mind though interest rates can go up just like rent so you only get that certainty and peace of mind if you truely can afford the property you have purchased.
- You really want pets. Depending on the country you live in, and the pet that you want it can be difficult to rent with animals. Owning a home makes that easier. Even if you can rent with your pet you might find it more difficult to find places that will rent to you should you need to move, or you might be forced to pay extra rent. This could be stressful for some people and thus may be reason to think about owning a home of their own.
Why You might Choose to Rent over Buy:
1. You value the ability to move around more. When you rent you are not tied to a place any longer than your lease (and even then…). If you love the idea of living in lots of different places either for the novelty of it or perhaps it helps your career to be able to move at the drop of a hat then renting is definitely the best option for you.
2. You want to live in a nicer location or place. Quite often it is cheaper to live in nicer homes or better locations than it would be to service a loan for the same place. Thus people buying tend to have to get something at a lower value than they might be able to afford renting. This is more likely the case if you accept that accomodation regardless costs money and commit to paying what you have, to have the rental you really want. If you are trying to save up money for say a home deposit while renting, of course you probably want to be in something cheaper so you have more left over funds. If living in a higher value property is your priority then simply look at the money you are spend on rent as what it costs to pay for that experience. It is not a waste of money if that is what you value.
3. You don’t have a lot of time to look after a home. Busy people may not like the added pressures of having to take care of a home themselves. If the only home you can afford is older and unrenovated and you can’t afford to pay contractors to do everything for you, then you’ll probably have no choice but to do most things yourself. If you are about to have a new baby or work very long hours then renting may be a better option as you won’t have to worry about home maintenance.
Ok so there is no right or wrong with this. Decide what is important to you and go from there. Remember what you value can change over time and you can reevaluate, but purchasing a home particularly with a big loan, will reduce your flexibility to have different options in the future so you want to be fairly sure it is right for you before making that choice.
Personally home ownership was right for us now. This is because we wanted to live rurally and farm and be a part of a community for the whole of our lives. We only plan to move if for example the place becomes too difficult for us to manage in our old age. We do not see it as an investment for this reason. Should things go to plan we would be never accessing the capital in our place. Home ownership wasn’t always right for me personally however, even in times i could have potentially afforded to buy a small unit. For example when i was a single woman in my 20s i wanted to be able to be flexible to live wherever my career or life took me. I moved interstate multiple times. My husband also luckily didn’t get into the property market when he was being suggested to do so from family and friends. If he had, then he would have already owned a home in the mining town where we met, and this would has significantly reduced our options as a couple. The homes in particular that he was being suggested to buy have gone down significantly in value and basically become unsalable as jobs in the area were cut. For this reason many people in that town would like to move on and live elsewhere but can’t afford to do so (yes this is a more unusual case, but regardless this shows how you need to listen to yourself when making such big decisions that affect your personal future, not what just others say will make you money etc).
Ultimately my husband and i have also felt comfortable making this choice for home ownership now because we felt we really could afford it. We saved up 2/3rds of the value of the home and paid the remainder mortgage in only a year. We believe in the principals of financial independence aiming to one day have a full income from our investments. Home ownership for us was the first step in this direction, however there is also no reason that someone couldn’t rent and be financially independent also. If you are interested in how we saved up for our home and paid our mortgage completely then you can read this post.