- The Pros and Cons of Buying
- The Pros and Cons of Renting
Generation after generation of families have purchased property for financial well-being, security and long-term investment.
Before making the decision whether to buy or rent a property, there are a number of advantages and disadvantages to both options which must be considered.
The Pros and Cons of Buying
- Income Generation – Buying to rent allows the property owner to generate rental income which can be used to reduce a home bond.
- Additions and Improvements – The buyer has the freedom to make changes to the property to suit their individual lifestyle and needs.
- Refinancing – Should additional funds be required, the homeowner has the option of applying for a new bond based on the current value of the property, rather than the value of the initial bond application.
- Credit Profile – Ensuring timeous bond repayments can improve the buyer’s credit score and profile.
- Tax Benefits – Should the homeowner elect to rent out a property, there are possible tax deductions related to income-generating properties.
- Long-term Investment – The value of a home should appreciate over time and generate a profit when sold.
- Upfront Costs – Buying a home requires a significant upfront investment, such as a deposit and transfer duties as well as fees for conveyancing, estate agent commission, property registration and bank charges
- Monthly Costs – These generally include rates, taxes and insurance, in addition to bond repayments
- Maintenance and Repair Expenses – As a homeowner, unplanned or emergency maintenance and repair costs can, if not provided for, place a strain on the financial budget allocated for monthly expenses.
- Market Volatility – The real estate market can be subject to fluctuations, and there is no guarantee the property will appreciate in value over time, especially during economic instability such as a recession or raised interest rates.
- Sale Duration – Should the homeowner wish to relocate or buy another property and require the money from the sale to do so, there is a possibility that the sales process may take longer than desired.
The Pros and Cons of Renting
- Upfront Costs – The tenant is responsible for a deposit, placed in an interest-bearing account, and one month’s rent. At the discretion of the homeowner, the tenant stands to be refunded the full deposit and interest accumulated over the rental period.
- Freedom of Movement – Depending on the rental agreement, tenants need only give one month’s notice and are free to move without any additional financial burden that may be incurred by the homeowner.
- Financial Stability – Tenants do not bear the risk of fluctuating property values as the rental amount is fixed at the beginning of the lease term.
- Location – As a tenant, there is the possibility of living in an area in which they could not afford to buy.
- Insurance – The tenant needs only to take out insurance to cover home contents whereas the homeowner is responsible for all maintenance and repairs to the property, as well as homeowner’s insurance.
- Savings Opportunity – In comparison to a homeowner, the tenant bears no additional costs above the rental payment, thus providing an opportunity to set aside extra income towards the purchase of their own home.
- Rental Increases – Rental agreements usually stipulate an increase of between 5 to 10 percent on renewal which could make it unaffordable for the tenant to continue residing in the property.
- Lease Agreement Conditions – A tenant is bound by the rules of the lease agreement, which may inhibit the freedom of use.
- Restrictive – No additions or alterations may be made to the property without the approval and consent of the homeowner.
- Return on Investment – Depending on the duration of the lease, the monthly rental amount provides no financial or investment benefit to the tenant in the long term.
- Security – At the end of the lease term, there is no guarantee that the homeowner will renew the lease.
To assess whether buying or renting is more favourable, research local real estate market trends and understand the associated costs. Another point to consider when budget setting, is that when the market is in a downturn, it can be an ideal opportunity to purchase a property under market value.
Further related articles:
- 5 Situations When Renting Makes More Sense Than Buying
- 3 Common Misconceptions About Renting
- 5 Important Tips for Renting with Pets
- 5 Home-Buying Fears to Debunk
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