Buying versus Renting ~ Part 1

Buying versus Renting ~ Part 1

Whether you are considering renting a house, buying an existing property, or building your first home, there are a some important factors for you to consider before you make an informed choice.

While renting certainly appears as the quick and easy solution, the biggest factor impacting our decision making in any property decision are our finances. So, is it more cost-effective to build a new home or to buy an existing residence, with the potential of risk of added maintenance, or is it simply cheaper to rent someone else’s property? There is really no quick answer to this question, but let us highlight some of the key factors involved.

The obvious advantage of buying or building a home is that you are increasing the investment of your personal asset and in doing so, you are simultaneously building up your equity. In the long run, this will not only give you financial stability, but you end up with an asset and added security, especially when you reach retirement age.

On the contrary, rent is often referred to as ‘dead’ money. Effectively, you are paying off your landlord’s mortgage and helping to increase their property portfolio. Renting is often considered a somewhat carefree option (and we will look at this closer in part 2 of our article), as you are not burdened with maintenance or additional homeownership costs. However, there is no financial advancement or gain for you in this scenario.

You may also be surprised to learn that in some cases a mortgage can be considerably lower than what you are currently paying in rent. As an example, one of our customers was renting a 4 bedroom house in Bayview Heights for $500/week. When said customer decided to build their own 4 bedroom home in Redlynch (complete with in-ground pool) their weekly mortgage repayment only amounted to $420/week.

Of course, there are additional costs to homeowners. You will have to obtain quality insurance cover for your home. When considering purchasing or building your home, location and age of your home can have a major influence on your insurance premiums.

For example, in Cairns an identical insurance for a new 4 bedroom house in Edmonton is quoted around $1,700, whereas a cover for an identical home in Smithfield amounts to roughly $3,500.

You will also find that a new home is cheaper to insure, when compared with an older house. Our trial quotes concluded that in comparison to the new Edmonton home insurance of $1,700, the quote for a house built during 1970-1979 in the same area came to $3,300.00. Keep in mind that as a tenant you will need liability insurance and you may risk the loss of your bond, should not everything be in order when you vacate the property.

In addition, as a homeowner you will have to take into account local council rates and maintenance costs, especially when deciding to purchase an older residence. This is where a new home, with a warranty can be more cost-effective and less risk for a first home buyer.

To summarise the finance aspect it really boils down to the point, whether you are driven to increase your equity and property portfolio in the long term, or if you chose less responsibility, over financial gain. And this decision remains yours to make.