Am I better off renting or buying?


Of course the first question to ask is can I afford to buy? And if so, should I? More of our customers are pondering these questions, especially in view of rising Australian house prices.

The answer really comes down to what suits your lifestyle and what your goals are. When you consider renting verses buying from just a financial point of view it’s a matter of where your money will get more return.

Is paying rent long term—and using your leftover money to invest in shares or superannuation—better than paying home loan interest charges and other ongoing costs long term? The answer is both options have benefits and risks.

One thing’s certain: if you were to rent long term and not invest at all you’d be paying off someone else’s home loan (or contributing to their income if they own the property outright). You’ll have the benefit of a place to live but at the end of the day you’re not building an asset for your future.

The key—if you decide not to buy yet or at all—is to use renting to help you build wealth. For example, short-term renting can form part of a strategy to buy your own place. But after doing the sums, you may even decide to rent until you retire and buy shares or invest in tax-effective super instead of buying a home.

There’s no doubt owning a home is part of the Australian dream. As hard as it can be to get started, paying off a home loan is one of the best ways to force yourself to save, build wealth and become better off. But just like rent money, the interest on a home loan can been seen as a waste—unless it’s for an investment property when it’s tax deductible.

On top of financial considerations your lifestyle goals are important too. Do you want or need the stability of owning your home? Or are you planning to move around a lot and do you need the flexibility and access to your savings that renting may provide? It may suit you to rent for the short term and buy later on.

You could build a plan to rent for a defined period and invest in shares or managed funds in order to boost your deposit and buy a home sooner than if you leave your money in a savings account.

Renting can in fact be cheaper than paying off a home loan. What’s more, when combined with investing, renting can work out better financially than buying your own place.

So in addition to investments like shares and managed funds, consider super too. Superannuation gives you tax concessions that your own home can’t. Although your savings are less accessible, it can be a very cost-effective way to build long-term wealth. Did you know that if you have the option of salary sacrificing pre-tax dollars into superannuation instead of paying off a home loan you may be better off paying rent until you retire?

So what’s the best option for you?

There’s a lot to think about when answering the rent or buy question. Finding the right answer for your individual needs is key. AMP’s Rent or buy calculator is a great starting point—it can give you an idea of how you’ll fare down the track, renting and buying. It’s also important to speak with a financial adviser and explore your goals so you can make a plan to reach them.


Rent vs buy calculator

Find out the potential benefits of renting or buying a property over time. You can also change the key assumptions that affect the outcome to better reflect your situation.

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Important information

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It’s important to consider your particular circumstances and read the relevant Product Disclosure Statement or Terms and Conditions before deciding what’s right for you. This information hasn’t taken your circumstances into account.

This information is provided by AMP Life Limited. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relation to products and services provided to you. All information on this website is subject to change without notice.