There’s a housing conundrum facing Adelaide families. The hype surrounding housing prices and the recent interest rate rises mean there are all sorts of opinions flying around the place.
At McGrath Real Estate Group, we’re often asked the old question…should I rent or buy?
The fact is there’s no right or wrong answer. It comes down to your situation.
And while house and unit prices in Adelaide maintained a slight increase over the past quarter* compared to our eastern state neighbours, the flip side of the coin is that rental prices are also on the rise.
So, where does that leave you and your family? Ultimately, it’s up to you to determine if renting or buying a home suits your family’s personal and financial situation.
Pros and cons of renting.
‘Rent money is dead money.’ How often have you heard that? On further reflection, you might find that’s not necessarily the case. Let’s take a quick look at the pros and cons.
The Pros
Flexibility — the ability to upsize or downsize as your family grows and the advantage of living in a neighbourhood where you might not necessarily be able to buy. However, it does allow you the flexibility to move to an area for a particular school zone or easier access to work opportunities.
Extra cash — you have the potential to save money. In fact, your monthly rental payments will likely be less than what a mortgage repayment might be for a comparable property. There is potential to save money for more immediate needs or look at other investments outside the property market.
Outgoings — a big plus is that your landlord is responsible for taking care of things like ongoing maintenance, repairs, council rates, and insurance bills that are all part of owning a home. However, you will need to take out contents insurance to protect against anything happening to your possessions.
The Cons
No Investment — your rent is paying someone else’s mortgage repayments or providing them with investment income. You may eventually pay off and fully own your home as a homeowner, but rental payments are ongoing. There is also no forced saving, so the incentive isn’t there to regularly put money toward an asset that eventually gains value over time.
Privacy or security — unfortunately, you’re at the whim of your landlord. If they decide to sell, you may have to move house, which adds stress and expense. Additionally, regular inspections often come at the most inconvenient times, even though your landlord is required to give you advance notice. Let’s also include here that you often can’t make the place your own with decorative or cosmetic changes or the option of having pets.
More expensive — because the housing market is in such flux at the moment, rental prices are increasing and, in many cases, are currently higher than mortgage repayments for houses in comparable areas to where you’re living.
Pros and cons of buying.
Even though Adelaide is still holding its own in the property market and prices are relatively high, there’s a considerable argument for having a place of your own. Here are some plusses and minuses for buying.
The Pros
It’s your place — your home, your choice to decorate, renovate and landscape any time you want. No permission from landlords needed. There may be some issues with body corporate restrictions on property modifications for apartments, units, or townhouses, but it’s still essentially yours.
Nest egg — your home, along with its location and the local market, will determine its value over the long term. If it’s at a rate greater than inflation, hopefully, it will leave you sitting on a nice little nest egg once you’ve paid off your mortgage.
Security — not only is owning a property a valuable asset during retirement, but you can also use the equity in your home to invest in another property, add an extension or renovate as your family grows, or consolidate other debts.
The Cons
Upfront costs — if you thought saving for a deposit was hard, there’s more pain to come. Think stamp duty, home and contents insurance, gas, electricity and water connection fees, and internet before you’ve even moved in!
Repayments — need to be paid regardless, adding more stress to your cost-of-living expenses. Failure to make payments means there’s a real possibility of foreclosure and repossession of your home by your lender.
Ongoings — costs associated with home maintenance and repairs, bills, rates, and general living expenses all add up. Add growing kids into the mix, and it can be financially overwhelming.
Are there any other options?
Another option gaining popularity is rentvesting. Never heard of it? Rentvesting, according to LifeHacker, is described as renting a home in an area that aligns with a person’s desired lifestyle while owning an investment property in a more budget-friendly area.
Essentially, you can enter the property market sooner by purchasing something smaller in a more affordable area using a smaller deposit. The thinking is that your property increases in value over time while you continue renting where you are. Selling it sometime down the track at a profit helps you to buy in a more desirable location. There are tax advantages too. As an investment property owner, you can claim expenses like interest charged on loans, rental costs like insurance, advertising, strata maintenance, and depreciation costs.
It’s not all good news, however. Rentvestors may not be eligible for some government-funded schemes like the First Home Owners Grant. You’ll also need to consider if you can maintain the juggle of paying rent where you are, on top of a mortgage. And there is the property management aspect to consider as well. Do you take it on yourself or pay an experienced property manager?
If you’re just starting out or already have a growing family, there are so many options and things to consider. Whether you’re thinking of buying, selling or rentvesting, the professional sales and property management team at McGrath Real Estate Group can steer you in the right direction.
Phone our office on 8350 4200, or drop into 42 Brighton Road, Glenelg.
* CoreLogic’s recent Hedonic Home Value Index Report — House and unit price growth to July 31, 2022