Am I better off renting or buying a home?

It’s a hot topic. The rent-versus-buy debate has been pulled every which way in the media and laid bare in the recent Reserve Bank of Australia report^.  But when all’s said and done, the possibilities are surprising. In fact, when it comes to where you live, you’re likely to have more options than you’ve considered.

An impossible dream?

The thought of buying a home can be exciting and daunting. The deposit amount and ongoing interest charges can really add up, making home ownership seem out-of-reach—especially in today’s housing market.

It’s no wonder many potential home buyers are asking whether they’d be better off renting. The good news is renting and buying don’t have to be mutually exclusive. There are ways to use the benefits of short-term renting as a strategy to buy your own place—but you may find out it’s better for you to rent long term, and not buy.

Isn’t renting just throwing money away?

The answer is yes, and no. Yes, rent money can be dead money. Because if you just rent and don’t invest, your money can’t grow and you’re simply paying off someone else’s home loan or providing rental income for them.

But the non-deductible interest on a home loan can also been seen as a waste. And because renting is sometimes cheaper than paying off a home loan you may be able to make renting work for you.

The fact is renting (combined with investing) may work out better financially than buying your own home. Who’d have thought?

Here’s how it could work: say you pay rent and at the same time invest in shares or super. If you invest the difference between the rent you pay and what you’d pay on a home loan—depending on the performance of your investments—there’s a chance you’ll be better off than if you bought a home. You’d need to look into whether this would suit you though.

Renting and investing in property

If you don’t want to live in an area that’s currently affordable for you to buy in, you could consider renting in an area that better suits your lifestyle and aim to buy in an affordable area that may be a good investment.

You could end up with the best of both worlds: your loan interest payments and various expenses for your investment property may be tax-deductible and you can enjoy living in an area of your choice.

It’s one way to enter the property market and aim to build capital growth, rather than having to save a larger deposit for a property in a more expensive area. But you’d need to work out the costs involved and whether it’s an option you could afford.

What if I choose not to buy at all?

Some recent media reports suggest an investment in shares or super could work out better financially than buying a home. Because an investment in shares or managed funds could provide better returns than the capital growth of your own home.

And with super providing tax concessions, it can be a very cost-effective way to build long-term wealth for your retirement.

The real value of buying

But aside from the potential financial benefits of renting and investing, owning a home is still part of the Australian dream. And as hard as it can be to get started, when you put your money into a home loan you’re effectively forcing yourself to save, build wealth and become better off.

And more than that, owning your own home means having the security of a home to live in, and control over decisions about it—you can renovate or maybe rent out a room to help you in the early days of your home loan.

Deciding on the best option

There’s a lot to think about when weighing up rent versus buy and what’s right for you—make sure you consider:

  1. The purchase price of property and the ongoing costs associated with home ownership compared with the cost of renting
  2. Your lifestyle and flexibility needs—visit the Q&AMP website to explore the ins and outs of property
  3. Whether you’ll be better off renting instead of buying—use our rent vs buy calculator.

And remember that whatever you decide, you can be better off by planning ahead. Speak with a financial adviser so you have a clear idea of your options and how to reach your goals—you’ll also develop good financial habits along the way to help you build wealth.

If you don’t have a financial adviser, call AMP on 131 267 Monday to Friday from 8am to 8pm and Saturday and Sunday between 9am and 5pm AEST and we’ll put you in touch with someone who can help.

^ Reserve Bank of Australia report

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© AMP Life Limited. This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, AMP does not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, AMP does not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.