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Should you rent or buy. What’s best for you

This article is part of a series dedicated to purchasing a home that follows Sarah, a typical first home buyer in Victoria. Follow Sarah through articles that explore variety of topics and issues related to buying a home.

When Sarah first started thinking about buying a home, at first it seemed overwhelming. If prices were so high...wouldn't it just be easier to rent forever?

She thought, is it really the case that buying a house is always better than renting one? 

While many people would say it’s naturally a better choice to buy a house versus renting one, is that really the case all the time?

It helps to break down that view in a short-term versus long-term focus.

Let’s say that Sarah decides to rent a home in the short-term. She earns $55,000 in her job as a secondary school teacher, which means she takes home $3,700 per month.

If she rents a home, her monthly housing bills look like this:

  • Rent: $800 (two bedroom apartment shared with a friend)
  • Utilities and water: $60
  • Renters’ insurance: $20
  • Total: $880

Her rent ends up being less than a quarter of her take-home pay, which sets her up nicely to save some money. Additionally, any time an appliance breaks or needs repairing, she can call the landlord to replace it at no cost to her.

But what about owning a home? If Sarah puts down 10% on a one bedroom apartment that costs $350,000, her monthly bills look like this:

  • Mortgage: $1600 (about 5% interest)
  • Utilities and water: $100 (living alone)
  • Home insurance: $40-$60
  • Council rates: $160 per month (Melbourne average)
  • Total: $1920

Suddenly, Sarah’s expenses go from less than a quarter of her pay to about 50%. Of course, there are always ways to save: but in the short-term buying a home can be more expensive, especially if an appliance breaks, a leak appears, or some maintenance is required.

On the other hand, Sarah should think about the long term as well – which makes buying a better option. For instance:

  • Renting for a longer period means Sarah has to think about paying for housing during retirement. Purchasing a home and paying it off before accessing super reduces bills in old age.
  • Buying a home can lead to greater wealth if the value of the home continues to increase.

This doesn’t mean that renting or buying are “good” or “bad”. Renting can be a great way for a first home buyer to save money and be flexible if life circumstances change. On the other hand, a long-term plan for buying a property can set up a first home buyer for wealth in later life.

SARAH'S TAKEAWAY:

Sarah doesn't mind renting for the moment - it lets her save more money and gives her flexibility. But she doesn't want to rent forever, so it's time to make a plan. 

Home First
Home First