Home Rent or Buy: Which Is Better In 2023? Here’s How To Decide
Making the decision to buy your first home isn’t an easy one. Of course, owning property is a huge milestone for so many. It’s the sum of years of hard work and saving, perhaps somewhere to raise a family, and the path towards a more secure future.
But it’s not always seen as essential for many people. Others may be unsure of when the time is right to stop renting and purchase that first home. Some may just decide that buying isn’t for them, as they are unfamiliar with the basics of rental property investment. And of course there is ‘rentvesting, which will discuss a little further down.
Let’s now explore the disadvantages and advantages of both renting and buying and look at how to decide when buying is the right choice.
Advantages of renting
The most obvious advantage to renting, and why so many people rent their home rather than buy, is upfront costs. Whether saving a deposit just isn’t feasible or not a smart move in the present circumstances, renting means not having to pay a large sum of money to secure the mortgage.
There are also other ongoing costs with owning a home that aren’t required when renting, such as repair and maintenance expenses, as well tax you pay as a result of owning land.
Renting a house is also great for those that just haven’t settled down and know that relocation is always on the cards. No matter the reason, renting is great for flexibility, with tenant agreements usually being a short-term arrangement.
Whether you’re already a property investor with an established portfolio , or thinking about real estate as an investment vehicle, renting can still be on the cards. Many investors will buy a home and rent it to others, while renting out a place to live in themselves.
This is called ‘rentvesting’ and can be considered a smart property investment strategy for certain people. It allows people to live where they want but also benefit from property investing. This is great for those who perhaps have to live in a certain area for work, or want to live in a specific area that they can’t necessarily afford to buy in.
Disadvantages of renting
The biggest disadvantage to renting is the lack of control over the place you’re living in. The owner has almost complete power over the property. A landlord has the right to periodically increase the rent, and even make it impossible to continue renting which can leave people without a place to live.
Many people also prefer to make the place they live their own by adding personal touches. This isn’t always easy to do when renting. Major modifications to the property are almost always impossible when renting. But sometimes even minor additions to make a place more homely, such as hanging a painting, can be difficult.
Renting also strips you of the benefits that come with investing in property. At the end of the day, you’re paying someone else’s mortgage. If you have the means to save for a deposit, wouldn’t it make more sense to direct that rent into your own mortgage, so that you can benefit in the future?
Advantages of buying
It’s no secret that buying property is a great way to invest in an asset that can increase in value over time. Whether you’re looking to build a property portfolio as an investor, or just buying a home to live in, buying the right property with the potential for growth can be a huge benefit in the future.
Some of the best real estate investments can be sold for a massive profit or rented out to generate regular income.
Investing in property the right way can help secure your future as well. As an owner, you’ll always have a place to live, with an asset that can help fund your retirement, as well as help protect you against unforeseeable problems that might arise.
As an owner, you also have the ability to do what you want with the property. Want to hang up a painting? No problem. Looking to knock the whole thing down and start all over again?
Go for it. Having that freedom means making modifications which can make the whole place feel more homely and even grow the property value.
Disadvantages of buying
As we’ve already mentioned, owning property comes with a heap of responsibility and can limit your future movements. You don’t have the flexibility that you might have with renting.
Even rentvesting comes with additional responsibility, as rental property management requires time and money to be invested by the owner. An investor will have to manage occupancy and ensure the property is kept in good living condition (or at least pay for a property manager to take over this role).
This, along with property tax and utilities all take away from the income you make as an investor.
But managing cash flow is an important part of the investing process. That’s why it’s so important to buy the right property and follow the correct steps, so that you can maximise the rental income you generate.
Knowing when to buy a home
There are a few key factors to consider when deciding whether to buy your first home.
Flexibility: If you’re looking to ‘rentvest’ then this won’t be a major factor to consider. But if you’re looking to live in that house, it’s important to consider whether you’re ready to live in a specific area. But remember, even living in that property doesn’t have to be permanent. If you do need to pack up and move, you can always explore the option of renting out the property.
Financial Stability: This is the big one. Are you in a financial position to buy a home? Saving for a deposit isn’t always easy (although there are ways to minimise this hurdle). You have to also know you’ll be in a position to pay mortgage repayments, so financial stability is high on the priority list.
The Current Market: Is now even a good time to buy? Luckily, this isn’t as big a factor as you might think. While many people try to ‘time the market’ to buy property at the right point in the cycle, it’s important to understand that there are always ‘markets within markets.’
The cycle of each ‘market’ varies at different times, which means that it’s always a good time to buy. It’s all about knowing where to look and how to analyse the data to make an informed choice, so that you purchase in the right area.
Lifestyle: Buying may just not be an option because of where you work or where you want to live. Renting is perfect if you are unable to buy in these areas. But consider buying property as well if you have the means. Rentvesting is a great work around for so many who live somewhere they can’t afford to buy in.
Knowing how to invest: If you’re looking to become a property investor and reap the rewards of growing a property portfolio, then you can’t really get around buying property. Not sure you know enough to become an investor? Not to worry.
Many investors start off with little knowledge, but start putting in the hard work and develop their understanding of property investing. Self-education is the key (with courses to help fast track the process if time is an issue) with a wide range of resources at your disposal!