Renting v Buying: What is the best financial decision for you?
You may finally be ready to purchase a property, but the uncertainty of the economy and the interest rate increasing multiple times a year has you questioning whether it is truly worth it to buy a property.
Both renting and buying have their specific benefits and drawbacks.
Key concepts to consider are that of unrecoverable costs and equity.
Renting:
When you are renting, the entire payment towards rent and utilities is unrecoverable, all you get in return is the use and enjoyment of the property, and zero equity (the value of ownership).
Buying:
When purchasing a property, through finance, a significant portion of your monthly expenses are recoverable. The interest, property taxes, maintenance, water and electricity are the only unrecoverable costs. The capital portion of your bond payment is equity and if you have chosen the right property this equity will grow.
The Comparison:
When looking at the same property, it would generally be cheaper to rent than to buy on a monthly cost basis. The important thing to weigh up is the difference between the rental payment and the bond payment and what you do with that difference.
It could be argued that investing the saving of renting versus buying could yield you a greater return than the equity growth of your property, but it would depend on a multitude of factors and there is always inherent risk.
The reality is that most renters do not invest the saving that they would have over buying a property, so that benefit is often not realised in any event. When buying you are locked into a long-term investment, which often provides a significant growth in equity.
The right decision depends entirely on your own personal circumstances, and each have their advantages and disadvantages. Renting with careful financial planning and self-control can be a smart move, while investing in the right property at the right price is a great way to build wealth.
Ready to buy or rent? Contact us today at www.threepercent.com / info@threepercent.com
*For informational purposes only and should not be construed as professional advice*