Wealth Connexion explains the different impacts buying or renting can have on your finances in the long term.
It can be difficult for households, particularly young families, to decide whether to stick with renting or to take the leap and purchase a home. Both options have different financial implications in the short and long term. There are also lifestyle factors to consider that may make renting a more suitable option for some. As your financial planner in Brisbane, we will analyse and compare the financial impacts of buying versus renting so you can determine which path aligns better with your financial goals and lifestyle needs.
The Financial Benefits of Buying
As of a census in 2020, about 66% of Australian households owned their own home. One of the biggest financial benefits of buying a home rather than renting is the ability to build equity in an asset over time. When you buy a home, some of your monthly mortgage payment goes towards paying down the principal on the loan. As you pay down the principal, you build equity in the home. This equity represents your ownership stake in the asset.
The equity you build can be a major source of wealth, and it can provide financial security and options later in life. You can tap into it through options like cash-out refinancing or downsizing to a smaller home.
Having an asset that builds value over decades of homeownership is a key financial benefit of buying, especially when working with a financial planner in Brisbane through the process.
The Financial Benefits of Renting
Renting offers more financial flexibility compared to buying, especially when you’re just starting out. With renting, there are typically lower upfront costs – You may only need to pay the first month’s rent plus a bond to move in. This is far less than the closing costs and fees required to purchase a home.
There’s also the incentive that no deposit payment is needed – renters can move into a new home without tying up thousands in this payment. Furthermore, money that would go towards a deposit payment can be invested elsewhere potentially earning a higher return.
Another attractive upside of renting is that your landlord is responsible for maintenance – therefore, you’re not obligated to pay for costs such as repairs, property taxes, or home insurance.
How to Weigh Up Your Options
Buying and renting each come with their own unique financial considerations and implications for your long-term wealth and lifestyle. Here are some key recommendations when deciding between buying and renting:
- Consider your financial goals and timeline – buying can make more sense if planning to stay put long-term, while renting offers more flexibility.
- Factor in all the major costs – not just mortgage vs rent, but also maintenance, repairs, property taxes, insurance, etc.
- Run the numbers for your situation to see if buying results in building equity and ownership. Renting may be “cheaper” monthly, but it doesn’t build assets.
- Seek professional advice from a financial planner in Brisbane to evaluate your full financial picture and goals when making the buying vs renting decision. There is no one-size-fits all answer.
The choice between buying and renting can have major financial implications long-term. If you need help determining how best to allocate your finances, contact Wealth Connexion today to get advice from an experienced financial planner in Brisbane.
