Should you rent or buy a home?

Have a good look at the pros and cons of renting or buying a home.

It’s the great housing dilemma – is it better to buy or rent a home? While some of us save hard for a deposit to leap onto the property ladder, others are enjoying the flexibility of long-term rentals.
Like any financial decision, knowing whether to buy or rent takes careful consideration. Here are some pros and cons of both to consider when making your decision.

Pros of buying a home

Buying a house comes with lots of pros and a few things to think about too. Taking on a home loan may not be the right choice for everyone, but let’s look at what you could stand to gain.

  • Increased equity
    Over time, the value of your home may increase. This means you could end up with an asset worth more than what you’ve paid. This equity is money you can tap into if you ever want to sell and upgrade, renovate, buy an investment or put towards something else that’s important in your life.
  • Forced savings
    Along the similar lines of equity, you’ll be paying a mortgage on a liability that could increase in value. This means your mortgage payments may act as a type of forced savings, increasing what your assets are worth and your overall borrowing power.
  • Stability
    Owning a home is a long-term commitment that links you into the community, people and organisations around you. This can give you a sense of stability in the suburb you’ve chosen to live. Plus, you’ll be able to set up your life, your children’s school, your work and all the important things to suit where you live.
  • Reap the rewards of renovating
    Enjoy the flexibility to undertake renovations and create a house that suits your needs. If you buy a cheaper house that requires some work, you can take advantage of a lower mortgage and enjoy the increased equity from the renovations you complete.

Cons of buying a home

Owning your own home can come with a couple of disadvantages, especially if you’re not prepared for them. While owning a house comes with a sense of pride, often you’ll be a touch more out of pocket with some unexpected costs.

  • Long-term commitment
    When you buy a house you’re in for the long game. If you need to tap into the money you’ve put into a deposit, you could be stuck with an investment that doesn’t work for your life long-term.
  • Maintenance costs
    Unlike renting, when something goes wrong in your home, you’ll be the one to pay for the repairs. Depending on what maintenance your house needs, you could be up for thousands of dollars which you may not have budgeted for.
  • Buying costs
    When you’re purchasing a home you’ll need to factor in buying costs too. Building and pest inspections, bank fees, stamp duty, lenders mortgage insurance and conveyancing or solicitor fees all come out of your back pocket. The extra costs of buying a home can add up and as the bills usually come at once, your bank account will take a hit.
  • Ongoing costs
    Along with your regular mortgage repayments you’ll be up for council costs, water rates, home and contents insurance and, if relevant, body corporate fees too.

Pros of renting a home

If you’re renting a house, either for the short or long-term, you can have the benefit of potentially saving more money while enjoying more flexibility. Let’s see how a rental property can help you achieve some other important life goals.

  • Less money outgoing
    If weekly rent is less than potential mortgage repayments, you could end up with more in your back-pocket week-to-week. That’s extra cash you could direct towards other areas of your life, or save.
  • Live in a better area
    Suburbs you love may be a little out of reach to buy but you may be able to snap up a rental in these high demand areas. If you’re renting, you’ll be able to choose a house with the amenities that best suit your needs, in a location you love.
  • Reduced maintenance costs
    When you’re renting a house, the onus of maintenance is on the landlord, not the tenant. This means that if anything goes wrong, the cost of repairing it is usually picked up by them, not you. It’s another way to save a bit of money.
  • Flexibility
    Want a house for the short term or to try a suburb before you buy? You’ll enjoy more flexibility when you’re renting. Unlike owning a home, you won’t be stuck with the same property if your life changes.

Cons of renting a home

Owning your own home is often referred to as the great Australian dream. But why? Let’s look at why many of us want to stop renting and how the financial incentives of buying can weigh up.

  • No financial incentives
    Rental money is often referred to as dead money, as the amount you’re paying isn’t changing your financial position. If you’re paying off a mortgage, you’re contributing towards an asset and can end up with a solid financial return.
  • Less security
    Everyone’s life changes, even your landlords. If your landlord decides to increase the rent, sell the house or move into the property themselves – your security and budget could be thrown out entirely.
  • Not your home
    When you’re renting a house there’s certain rules that come with it. Painting the walls, hanging artwork, having pets and completing renovations are all at the discretion of the landlord. You just can’t get away from the fact that the house is always someone else’s.
  • Uncertain costs
    As house values increase over time, the price of rent often does too. If you’re renting, you’re not getting the positive impact of the property pricing shift but you'll probably experience more costs.

RACQ members can customise their Home and Contents Insurance to protect the things that matter most.