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Considerations in Buying Versus Renting Debate
30/11/2009
The pros and cons of buying your own home versus renting and channelling surplus funds into investments are both financial and emotional, according to Smartline Personal Mortgage Advisers.
Smartline Managing Director, Chris Acret, said many people liked the feeling of owning their own ‘castle’ and being in control of their own destiny.
“While some may suggest that the great Australian dream of owning your own home is not as relevant as it used to be, it is still a goal for the majority of people,” he said.
“When considering which approach has the most merit – buying or renting and investing – I don’t think the two concepts should be mutually exclusive.
“Many of the people we advise want to buy their own home from a security perspective, but they also recognise that a solid level of equity in their own home can be the foundation for long-term wealth creation.
“This may be through the purchase of other properties to rent out, or through the creation of a diversified share portfolio,
“The family home can be a great springboard for either.”
Paying off the family home also provides a valuable asset that is exempt from Capital Gains Tax.
Mr Acret said renting may be an attractive option for those who wanted to avoid the costs of maintaining a property or wanted the flexibility to move without the costs and hassles associated with selling a property.
“Renting may also be a good option for people who want to live in a suburb close to the city or the beach but can’t afford to buy a property in that area,” he said.
“You could buy a property in an adjoining suburb which isn’t as expensive (but still has good scope for capital growth) and rent that out while you rent a property in your preferred suburb.”
The key to this strategy is ensuring the money saved on mortgage repayments and maintenance costs is channelled into some other form of investment – either property or shares.
The commitment of a reasonable and appropriate level of debt can actually drive people to look at ways of earning more money or better managing their funds.
Many people find paying off a mortgage is a form of enforced savings; a lot of people just don’t have the discipline to save and invest if they are renting.
“The most important thing is to be doing something proactive about creating wealth for you and your family – whether that’s paying off your own home to leverage into investments or renting and putting all your spare money into an investment property or shares,” Mr Acret said.
“The biggest mistake people make is doing nothing.”
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