With renting prices increasing (again) and the property market booming (again), many are left wondering whether renting is right thing for them to do.
After all, renting was always seen as the cheaper, stress-free option that allowed young people and families to enjoy more disposable income. However, as renting continues to become more and more expensive - sometimes more expensive than servicing a loan - many are asking: Is it better to just buy?
Of course, everyone’s situation is different; there’s no one-size-fits-all approach. It’s important to think carefully about the how your unique circumstances before you make a decision.
Here are a few things to consider:
What do you want out of a property?
Ask yourself: Do you want a place to live in, a place to invest in, or both? Are you looking to settle down in one spot, or do you see yourself moving around in the near future?
If you already have a place to live and you’re only looking to invest, buying could be the perfect option. In the short term, you’ll be able to rent the property out in order to service your mortgage. In the long term, you’ll have the freedom to move in, or use the equity in the property to buy a new one.
If you’re looking for a place to live in, it’s worth considering how buying a property might raise your living costs, and become a liability. After all, the mortgage is only one of many costs: You’ll also be up for things like land tax, strata fees and council fees…and don’t forget maintenance and repairs.
Many people who have only rented don’t realise how expensive it can be to own a property!
Furthermore, with the housing boom tipped to end this year, you could very well find yourself with negative equity, and that isn’t a place you want to be in. (It’s best to have a chat to an accountant or broker.)
Finally, it’s worth considering whether you intend to hold onto the property or sell it. Of course, this will also be contingent on your life plans, which brings us to the next consideration.
What’s your employment type, and what are your career plans?
If you’re a casual or gig economy worker, you might not be eligible for a bank loan. In this case, buying may not be an option for you.
While this seems kinda discriminatory and sucky - especially when more and more people are being pushed into the gig economy - these kinds of barriers are there to protect you.
After all, you don’t want to be forced to sell your home if your situation changes. You might not think this is such a bad thing, but with all of the costs associated with buying and selling a property, it can get very expensive, very quickly! Moreover, if the market turns, you can end up owning money on a property that you don’t even own!
Of course, when your career is stable (i.e. you’re in permanent employment or your business is stable), it’s easier to figure out whether you can continue to service your mortgage in the long term.
Then again, life is always full of surprises, and as the pandemic has demonstrated, things aren’t always as stable as we’d like to believe. Often, it comes down how much risk you’re willing to take. In Australia, property is seen as low risk and moderate to high reward. But if you’re sensitive to stress and you want to make a safe bet, it’s probably best to steer clear of loans that are going to stretch you financially.
What are your travel plans and/or ambitions?
Often, people will warn young people against buying a property because a mortgage is a big responsibility. But if you want to travel around and live it up, it might actually be worth buying a property and renting it out, as leases can make leaving at a moment’s notice, difficult and expensive.
Of course, as mentioned before, it’s important that you buy a property which is positively geared so that it takes care of itself.
Do you value cash or liquid assets?
If so, investing in property might not be for you.
Sure, you can ‘flip’ the properties, but this takes a lot of skill. You need to be financially savvy, have basic renovating skills, and be willing to eat the costs associated with buying and selling properties.
There’s a reason why people hold.
Do you have a 20% deposit saved? If not, are you open to low doc loans?
Check out our last blog on low doc loans and how to figure out if they’re right for you.