Global Power | Local Knowledge | Uniquely Personal

To buy or rent?

To buy or rent?

Although renting can sometimes make financial sense, the author of this Australian article concludes it is rare that people are dedicated and focussed enough to maintain the required saving pattern and not spend the extra funds on other things.

Renters potentially can be better off financially over the long term than home owners, but it requires a disciplined approach to investing excess funds.

"Before you commit your investment dollars to buying a home, you should perhaps compare this strategy to the benefits that might come from renting and investing the money you've saved in other ways,'' AMP financial planner Darren James said.

He said the money home buyers would normally spend on things such as council rates and the difference between weekly rent and meeting mortgage repayments with rising interest rates could be put into a longer term investment. And investments could be diversified rather than tied up in one asset.

"It's quite possible that people would end up better off if they actually decided to invest that money rather than spend it,'' Mr James said.

But he said it was rare that people were dedicated and focussed enough to maintain that saving pattern and not spend the extra funds on other things.

Mr James also said it was not just a matter of finances, because many people wanted the security of owning their own home.

"There are always other factors that will influence your decision to rent or buy your home, such as interest rates and whether or not you're prepared to take a bullish approach to investing,'' he said.

"Putting financials aside, however, there's no doubt that for many people owning their own home provides security, peace of mind and the chance to live out the great Australian dream of home ownership.''

Savings & Loans Credit Union chief executive Greg Connor said there was "no right or wrong answer'' as to which was the best option out of renting or buying.

"It all depends on your financial situation and weighing up your stage of life, your lifestyle needs and your personal goals,'' he said.

"It's the dream of most Australians to own their own home. However, in the current climate of high property prices this is becoming more difficult, particularly for young people.''

Mr Connor said the benefits of renting included the cheaper weekly rent, and not being responsible if anything major went wrong with the property. But renters also had to abide by a landlord's restrictions on the property.

"Most importantly, if you decide to rent you must have the discipline to invest the extra money you would normally pay off a mortgage,'' Mr Connor said.

All information provided is of a general nature only and does not take into account your personal financial circumstances or objectives. Before making a decision on the basis of this material, you need to consider, with or without the assistance of a financial adviser, whether the material is appropriate in light of your individual needs and circumstances. This information does not constitute a recommendation to invest in or take out any of the products or services provided by SMATS Services (Australia) Pty Ltd or Australasian Taxation Services Pty Ltd.

Subscribe Now