Published 21 November 2023
One of the big life decisions most of us face at some point is whether it’s better to buy or rent property. Rarely have there been so many fast moving parts to consider when making this decision… interest rates have risen at the fastest pace ever, rentals are growing at a double digit rate, and inflation remains stubbornly high. With so much change afoot, it’s worth comparing property buying and renting with fresh eyes.
Pros and cons of buying property versus renting
As per our recent article, the low rental vacancy rates spell optimistic outlook for residential property, so the arguments in favour of owning property are particularly compelling right now. Buying property allows property owners to increase their wealth through capital growth and renting their property to tenants. In addition, owning property can provide stability, the ability to refurbish, and credit score benefits. Conversely, buying property involves many expensive costs including stamp duty and interest on debt, and property ownership can limit freedom.
Renting property involves lower upfront costs, lower maintenance costs, and doesn’t require debt which needs to be serviced and repaid. Overall, it can be a more flexible way to own property. However, rental costs are on the rise and are considered by many to be dead money. In addition, renting provides less personal and financial security than buying.
Financial Comparison: Buying vs. Renting
If we compare a typical North-West Sydney rental which costs $1,000 per week for a four-bedroom home with purchasing the same home for $900,000 with the help of a 90% principal and interest mortgage at a 5.89% interest rate (a typical current rate as per Canstar), here’s the comparison…
Mortgage payments: $1,061/week.
So the cost of renting and buying is similar in this example, but it’s worth remembering the property buyer needed to save the deposit as well as the buying costs. In addition, we are not comparing like-for-like in this example since the property buyer’s equity will gradually increase during the 30-year mortgage. Some would argue a 6% premium over the cost of renting is a small price to pay for this long term wealth building upside.
A Compelling Case for Property Ownership
The right answer to the buying versus renting question will be different for everyone. However, it’s worth highlighting that the net benefits of property ownership are particularly compelling over the long term due to the upward trend in property prices. With the cost of renting and buying running at comparable levels, for many people the decision to buy has become a no brainer due to the wealth generation potential and other benefits offered by property ownership.
If you are considering buying a property, check out Landen’s compelling property opportunities of contact our Sales Team to learn more.