Whether you buy or rent, a roof over your head is perhaps one of life’s biggest expenses. Low interest rates over the last few months have made real estate an attractive investment and when it comes to the ‘rent versus buy’ property argument in Australia, ‘team buy’ seems to drown out the detractors with gusto. But is that changing with more volatile markets? Here’s our guide to weighing up some of the options:
If you accept the notion of a property bubble, then renting may start to make sense. Many are content to hold back and wait, preferring to keep cash on hand in high interest savings accounts. But there’s more to consider than just opting out of the property market altogether.
Buy in – it could save you money
Low interest rates and flatter real estate markets mean buyers are finding areas where it is actually cheaper to buy a house than rent one.
Take the latest RP Data report as an example. There are now a whopping 692 towns and suburbs where homes are cheaper to own than rent, up from just 179 last year.1 That report is based on the difference between monthly mortgage and rent payments on median value homes. Sound too simplistic for life’s big decisions? Maybe. But there’s more to consider on the other side of this data.
A sea change – can renters afford one?
If people generally agree cities perform better for long-term investments, the data also shows plenty of regional areas have now become cheaper for renting than owning – an interesting thought for retirement dreamers.
Considering a sea change? You may find lower regional rents are one reason to go for it. It doesn’t have to hinge on finding a perfect home to purchase.
Steady/volatile markets – at the same time?
The latest jump from 179 to 692 suburbs where homes are cheaper to own than rent is a product of big rents in flat markets. Interest rates have fallen to record lows, helping cushion the impact of market volatility. Yet, at the same time, weekly rents have recorded years of steady growth – another reason why the decision to either rent or buy property can depend on location and stage of life.
Committing to savings, either way
Even in our cities, it can depend on your lifestyle as to whether buying or renting will suit. You may want a trophy home and a million-dollar image. Renting could trump buying if you have the dedication to invest the difference.
Here’s why: in the world of $400,000 homes you may see a rental return of around $400 a week. At $800,000, that could jump to $800 a week. But fall in love with a $2.5 million pad and your return may only climb to $1200 a week.
If houses that rent for $1000 a week cost three times as much in mortgage repayments, your $2000-a-week surplus may be better off working harder in high interest savings accounts or other investments. So it’s important that you get the most out of your investment property.
Take a $2 million loan with 6 per cent interest over 25 years – the repayments are almost $3000 a week. When it comes to a luxury lifestyle, renters are living in the lap of it.
In the ‘rent versus buy’ argument, ‘team buy’ have historically proclaimed victory. But as our property markets waver, the decision might not be as clear cut.
If you’re ready to buy property, what factors did you consider to reach a decision?