Should You Buy or Rent?

It's a question that's existed for as long as there have been homes to buy and rent: What should you do, buy or rent? The debate rages on all around the world, and it's easy to see why. Both buying and renting have their own distinct advantages and disadvantages, and there is simply no one right answer to the buying-versus-renting debate.

There may not be a simple answer to this question, but that's OK. Understanding why there isn't one might be more valuable than any straightforward answer could be. Since either buying or renting could be the proper choice depending on the situation, each individual can apply their knowledge and make the best possible decision for their finances and their future. Here's what you need to know.

Why Buying Is Often Better

The argument for buying is all about the value of the property and the difference between home loan payments and rent. Let's take two different situations as an example. Suppose that there are two people, one buying and one renting. The buyer starts out behind in our calculations, because they have to put a chunk of change down on their home as a down payment, and they also have to shell out for lawyers and other costs associated with closing a real estate deal.

Each month, both of these people pay up. One pays rent, while the other pays into their home loan (for our purposes here, let's suppose the rent and the loan payments are equal). There's a big difference between these two types of payments. Our homeowner may eventually pay off his or her loan, meaning that suddenly there will be a month where our renter is paying and our homeowner is not. Or perhaps our homeowner sells their home and moves. They'll have to pay off the rest of their loan when they do this, but they'll also get back the value that they already paid off—which is theirs to keep. When our renter moves, he or she gets nothing back. This means that, in the long term, buying tends to provide better financial payoff.

Why Renting Is Sometimes Better

The advantages of buying are obvious. So if you can afford to buy, why would you ever rent?

One reason might be that you're not planning to live in your next home for more than a few years. The clear financial benefits that we laid out about have to outweigh the closing costs in order to be worthwhile. The down payment and the loan payments (or at least the bulk of them—there's some interest, too) are things the homeowner will likely recoup when they sell, but the closing costs are gone forever, much like rent. The financial advantage of owning a home is much clearer in longer-term stays of five years, ten years, or decades since the closing costs begin to look much smaller as you spread them out against years' worth of financial advantages.

Other things help make the case for renting, too. Urban residents shopping for co-op apartments might find extra fees charged by the co-op board that diminishes the case for buying. In thriving economies, some might consider investing their money instead of using it as a down payment, hoping market gains can outpace the value they'd get from homeownership. Sometimes, renting can beat buying.

Making the Call

All of these are factors that you should consider when you decide between renting and buying a home, experts say. Unfortunately, there's no much of a way around doing a bit of math! To really get a sense of how much you'll save by renting or buying, you'll need to consider factors like interest rates (are they low or high?), the housing market (are homes undervalued? Is the market lifting home values over time?), and your own plans (is your family growing? Will you need to relocate for work?). Doing the math with specific numbers is crucial, explain experts who offer affordable home loans in Australia, because the specific numbers in loan agreements and other technicalities can end up mattering quite a bit more than any "conventional wisdom" can account for.

So do the legwork! Hunt down the best deals on real estate and the best rates on home loans. Crunch the numbers and mind the details. If you do, you can be confident in your decision to buy or rent.

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