Today, the decision to rent or buy is not simply a matter of deciding whether you would rather pay a landlord or a bank. Both options have costs, advantages and disadvantages, and what makes sense for one household may be completely wrong for another.
There was a time when the standard advice seemed simple: stop throwing money away on rent and buy a house. After all, once the bond is paid, the house is yours, but life, housing costs and household budgets have become rather more complicated than that.
Today, the decision to rent or buy is not simply a matter of deciding whether you would rather pay a landlord or a bank. Both options have costs, advantages and disadvantages, and what makes sense for one household may be completely wrong for another.
Buying a home certainly has its attractions. For many people, owning their own property provides a sense of security and permanence. There is something satisfying about knowing that the place you live in belongs to you, and you can generally make changes to the property without asking a landlord for permission. A property can also become a valuable asset over the long term. Once the bond has been paid off, the owner no longer has a monthly home-loan instalment, although there will still be rates, insurance, maintenance and other costs associated with owning a property, but buying comes with considerably more than the advertised purchase price.
There is the deposit, transfer and registration costs, bond-related costs, insurance, rates, maintenance and repairs. When the geyser decides to give up on a Sunday afternoon or the roof suddenly develops an interesting new leak, there is no landlord to call. Home ownership is also a long-term commitment. Selling a property can take time and comes with its own costs. If your job, family circumstances or financial situation changes, owning a home may not offer the flexibility that renting does.
Renting, meanwhile, has often been viewed as the less desirable option, but it can make perfectly good financial and practical sense. The biggest advantage is flexibility. If you are uncertain about where you want to live, expect to move for work, are saving for a deposit or simply do not want the responsibility of maintaining a property, renting can provide breathing room.
A tenant generally knows what the monthly rental is, while major structural repairs and maintenance are usually the landlord's responsibility, subject to the terms of the lease. You may also be able to live in an area or property that would be beyond your budget to purchase. The downside, of course, is that rent does not give you ownership of the property. Rental increases are another consideration, and there is no guarantee that you will be able to remain in the same property indefinitely.
So which one is best? A common mistake is comparing the rent with the monthly bond repayment and assuming that whichever is lower is automatically the better choice. It isn't that simple. If you buy, the bond repayment is only one part of the cost. Add rates, insurance, maintenance and other ownership expenses. If you rent, consider the rental, deposit, possible annual increases and any costs that are your responsibility under the lease. Then look at the deposit.
If buying would require you to empty your savings account, it may leave you dangerously exposed to an unexpected expense. Owning a house is wonderful until the first major repair arrives and there is no emergency fund left to pay for it. Your plans for the next few years also matter. If you expect to remain in the same town and property for a long time, buying may be worth considering because the substantial costs associated with purchasing and selling property are easier to absorb over a longer period. If you are unsure where life will take you, renting can provide valuable flexibility.
Age and stage of life can also change the calculation. A young couple starting their careers may value mobility, while a family looking for stability may have different priorities. Someone approaching retirement may also look at property very differently from someone taking out their first bond.
There is another question worth asking: what could you do with the difference? If renting costs less than buying, does the household actually save or invest the difference? If the money simply disappears into restaurants, shopping and online purchases, the theoretical financial advantage of renting may never materialise. On the other hand, someone who rents while consistently saving and investing may be building financial security in a different way.
It is also worth remembering that a house is a home first and an investment second. Property values do not rise in a perfectly straight line, and owning a property does not automatically guarantee a profit. Location, condition, the local economy and many other factors influence what a property will eventually be worth.
The idea that renting is simply "throwing money away" is too simplistic. You are paying for somewhere to live, just as a homeowner is paying for somewhere to live while also taking on the costs and responsibilities of ownership. Likewise, buying a house should not be viewed as automatically being a better financial decision. A home loan is a substantial long-term commitment, and being house-rich but cash-poor can create its own problems.
The right decision is ultimately the one that fits your income, savings, lifestyle, future plans and tolerance for financial commitment. In other words, don't buy a house simply because everyone tells you that you should. And don't rent simply because buying feels too complicated. Do the sums. Read the small print and be honest about your circumstances.
Remember that the most expensive house is not necessarily the one with the highest price tag. It may be the one you can technically afford on paper but that leaves you struggling every month.
A home should provide somewhere to live, not somewhere for your finances to go and hide.
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