• Melbourne Mortgage Advice

Should I Consider Renting AND Buying?

Updated: Jun 30, 2020

Buying a home where you want to live is becoming increasingly difficult. It’s the classic balancing act of trying to get the building you need in the location you want. With location being the huge influencer when it comes to the price of real estate, many people start looking beyond the traditional path of buying to occupy. So how do these strategies work and what are the pros and cons?

The advantages of renting where you want to live Despite the record low interest rates we are currently seeing in Australia, it can still work out cheaper to rent than buy. When you rent a property to live in, the landlord pays for repairs and maintenance, there are no council rates to pay and no building insurance premiums to step up for.

Your weekends are free as there are no odd jobs to be done around the house and there is no need to spend your time in a queue at Bunnings!

And perhaps the greatest advantage – flexibility! You can live in your preferred location and generally have a reasonable choice of properties to choose from. Rental agreements are typically for 12 month terms but occasionally there are 6 month terms and landlords are often keen to entertain longer than 12 month terms. Like many things in real estate, negotiation is the key.

Decide you don’t like the area? Wait for (or negotiate) the current lease to expire and then move to another area. Costs? Removalist and connections. A far cry from the hefty fees associated with selling a property and buying another one.

Moving into a rental property is quick. Assuming the application is approved, and the property is vacant and ready, you can often go from applying for a property on the Monday to keys in hand on the Friday! Compare that to a 30-120 day settlement timeframe when you buy.

How do I set myself up for the future and achieve my dream of home ownership? This is where the ‘buy’ part of the plan comes in. It is often the case that we simply cannot afford to buy where we want or need to live so the focus changes to where can we afford to buy? Purchasing real estate is widely considered to be a sensible long-term investment and having a tenant help you pay off your property has some compelling advantages.

Buying an investment property requires a very different approach to property selection than buying a property to live in. A lower purchase price can be considered, and the focus moves to investment property fundamentals such as access to transport, schools and shops. Finding a solid building that will require little maintenance is also important.

Over time, through smart debt reduction and maybe even some capital growth, your equity level will grow, and opportunities can open up that were not there before. The more equity you have, the stronger your capacity is to obtain finance.

Purchasing a property for investment purposes can have tax advantages and these possible benefits should be discussed with an accountant or tax adviser to see how they could work for you. Mortgage structures are also a crucial factor to consider as getting the right loan in place to match your accountant’s advice is one of the keys to a great outcome.

Owning a property gives you options. Should I sell, take my equity out and buy my own home? Or can I afford to keep the investment property AND buy a home?

Key things to consider Renting and buying provides a good balance between lifestyle and working towards financial goals. The best advice I could give someone heading down this road? KEEP SAVING! It can be easy to relax into a comfortable cash flow situation with a tenant contributing to the investment mortgage but the more money you put away for the future the better you will be placed when it comes time to buying your own home.

Building your savings in an offset account, or through additional loan repayments will help build your equity and strengthen your financial position but make sure to get that taxation advice first as one may be preferable over the other.

There are of course several downsides to the Renting and Buying strategy and these include:

  1. Giving up the potential First Home Buyer benefits that only apply to first-time owner-occupied purchases.

  2. The risk of having to move multiple times if lease renewals are not possible or the property proves to be unsuitable.

  3. You can’t personalise a rental property. One of the great joys of home ownership is the ability to modify and improve the dwelling to your liking.

  4. Renting and Buying requires strong financial discipline to ensure your long-term goal of buying your own home remains viable. Remember, keep saving.

Like to know more? Renting and Buying strategies require sound research and professional advice. You should always consult an accountant or taxation adviser and a legal professional to understand the various implications that this approach can have. Working in conjunction with a mortgage broker will help you to understand your borrowing capacity in terms of the initial purchase and the possible long-term options that can develop.

You might also like to play around with our Rent Versus Buying calculator.

We’ve helped many clients explore these ideas and would love to help you with your research.

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