The pros and cons of buying vs renting
Talk of the housing market has been as unavoidable as the weather lately. It’s been such a rollercoaster of a time that it seems like everyone is looking at their own paddocks and wondering if the grass is greener on the other side.
For those currently renting, should they be looking to buy? And for homeowners right now, is the rental market looking more attractive?
Let’s lay out all the pros and cons of each side for a better look.
However, please remember that the ideas and information below don’t take your personal circumstances into account, and seeking advice before making any decisions is important. This is not a guide – this is just a starting point to get you thinking about what could be beneficial for you.
The pros of renting a home
There are many excellent reasons to stick with renting.
For a start, there’s less responsibility. If the bathroom springs a leak or the oven decides it’s had enough, all you need to do is make the call to the property manager to organise a fix. They get to pay for a replacement or find someone to come fix it, while you keep paying the same weekly rent.
Renting also gives you more flexibility. Whether there’s a career opportunity in another city or a desire to throw it all in and go travelling indefinitely, all you need to do is give your notice and move out. In February 2022, the national median number of days to sell a property was over a month, which reduces a homeowner’s flexibility when making life changes.
One of the biggest pros is not needing a five or six-figure deposit to rent. Some banks allow first-time buyers to put down just 10%, but 20% is the standard. That can mean a lot of cash, when looking at the August 2022 median house prices across New Zealand which were sitting at around $800,000 a pop. Putting together enough for a bond to move into a rental may be more attainable. You can even find out the market rent for a property using the government Tenancy Services website.
The cons of renting a home
Renting a home of course comes with its own downsides, or everyone would be at it.
For many, the biggest downside is that by paying rent instead of mortgage repayments, you’re building up someone else’s equity instead of your own. Rent and mortgage payments can be close to the same amounts, so it can be a bitter pill to swallow to know that those payments are going to a landlord’s mortgage rather than yours.
There’s also the lack of freedom within the home. Want pets, or to paint the walls green? All decisions must be approved by the property manager or owner, and they are well within their rights to say no.
Should the owner decide to do major renovations, sell the property, or move in themselves, they can also rightfully tell you it’s time to go. So, there’s a real lack of long-term stability when renting.
Finally, there’s the potential for flatmates. Flatmates and their dishes, noises, and sneaking into your treat stash when you’re not looking. Enough said.
The pros of buying a home
For a start, you’ll be building your own equity. With every mortgage repayment, you owe the bank a little less, slowly working your way towards paying off the mortgage. Even if you choose to sell up and buy elsewhere, that equity you’ve built may come with you. The 2021 Kiwi Family Report found that of people who are renting but are actively looking to buy their own home, the top reason is because they want to stop paying rent (69.9%).
You may be able to get all the pets you want and make all the renovations you want, as you may have the freedom to make all these decisions for yourself.
You’ll have stability in knowing no landlord is going to kick you out of the home, so it can be yours for as long as you like (provided you keep repaying that mortgage).
Generally speaking, homes tend to increase in value over time, so there is a potential for profit should you choose to sell in the future.
The cons of buying a home
A large hurdle for buying a home is the massive upfront cost. A 20% deposit ( commonly required) on an $800,000 home (the median house price at August 2022) is $160,000 (a figure far out of sight for many). Our 2022 Kiwi Housing Trends Report found that a massive 90% of first home buyers feel locked out of the housing market, and it’s no surprise when deposits are that high. That’s not even mentioning the other initial costs including property inspection, lawyer’s fees, and purchases such as a fridge, dishwasher, and washing machine.
Then there are the ongoing costs, such as council rates and insurance. The national average annual residential council rates rose to $2,572 in 2021, but were as high as $3,599 in some areas (Auckland, of course).
Should something break, it’s up to you to fix it. That could be a $10 light bulb or a $10,000 roof repair, so home ownership does come with a lot more responsibilities.
As a homeowner, you’ll have less flexibility to up sticks and go somewhere new. You’ll either need to prepare your home for renting and find suitable tenants while you’re gone, leave it empty, or prepare it for sale, pack everything up, and hope it’s a seller’s market.
Finally, there’s the potential for interest rates to rise, meaning your mortgage payments could increase as well. You may be able to avoid this risk with a fixed interest rate for a longer term (although that can also be a gamble in case interest rates drop!).
Generally speaking, the downsides of home ownership are largely related to high costs, and the potential for more high costs in the future.
If your future matters, then plan for it!
OneChoice Life Insurance may be an idea, too. Should the worst happen, OneChoice may pay a lump sum to your family, which can help to cover your mortgage or rental costs, so they don’t need to pack up and move from your family home.
So, to rent, or to buy – that is the question. They say the grass is always greener, but at least if you own your own home, you have the freedom to paint your walls as green as you like.
This article is provided for general information purposes only, does not consider your objectives, financial situation or needs and shouldn’t be considered or relied upon as professional or financial advice. If you have legal, tax, or financial questions, you should contact an appropriate professional.
16 Sep 2022