The Great Millennial Debate: To Buy or Rent?

by limniospropertygroup | 15. March 2018 09:33

To buy or to rent?


Or to put it in the words of our parents: “To pay off somebody else’s home loan or your own?”


While certainly more vexing than the price of avocado on toast, the decision to buy or to rent is what’s at the crux of today’s millennial market debate.


So what really is the better option, if a better option even exists?


While many young Australians have created a self-imposed reputation for renting, there are just as many who dream of the financial independence that might come from owning their own home. Our role as industry leaders is to take note of the demand, encourage market research and make either option a financially rewarding one for each and every client.




THE PROS AND CONS OF RENTING


+ Pros



  1. Freedom and Flexibility



  • Renting can be the best way to live the lifestyle you want while you’re young, as it gives you the freedom to relocate as little or often as you like once your lease expires.

  • The significant costs associated with buying and selling means that you have less flexibility when choosing to move house.

  • Your landlord, not you, is responsible for performing nearly all maintenance and repair work on the property.



  1. Free Up Your Savings and Diversify



  • There’s no denying signing a rental lease is much less permanent than a mortgage! Without a massive deposit to save and pay for – or huge interest on a home loan – it is much easier to save in the present tense for things that might mean more to you such as travel, entertainment, study, or starting your own business. It could also be used for other investments that could potentially yield greater or quicker returns than a residential property will.


– Cons



  1. Less Security



  • Renting comes with more flexibility but that also means less security, as you landlord can ultimately decide whether you stay or go. For millennials looking to start a family this could be a massive downside so buying may prove the smarter option.



  1. Costs and Less Financial Independence



  • In working to pay for your rent (effectively to pay off your landlord’s home loan) you aren’t getting a head start on saving for your own.

  • If history is a past indicator, the cost of renting will steadily increase over the years due to inflation and rise in property prices. Depending on where you live, your mortgage repayments may initially be higher than the cost of renting, but over the life of the loan, the interest charged reduces as the principal is paid off.

  • A mortgage is like forced savings. You’re obligated to pay your mortgage every month – putting money towards an asset that could potentially increase over time. But with renting, it can be tempting to spend spare cash rather than saving or investing it.


Is Renting the Right Option for Me?


If your career requires you to move frequently or you’re looking to travel regularly, renting can be a desirable alternative to owning your own home. Buying a home, especially for first home buyers, often means that all your savings will be going towards the one asset. Do you feel comfortable with most, if not all, your savings tied up in a single investment? If not, renting might be the better option while you decide how else to diversify your savings.



 


Renting in the Millennial Age

Global data shows that the millennial generation has taken the “work smarter not harder” mantra in full swing, and with the rise of social influencers, start-ups and e-commerce entrepreneurs riding the money-making wave from more than just one place, giving yourself the flexibility to come and go as you please might just be more viable – for now!


 


 


THE PROS AND CONS OF BUYING


+ Pros



  1. Appreciation in House Prices 



  • Regardless of when, where or what you buy, investing in real estate will almost always be a fruitful and positive decision, and having an asset that increases over time is extremely appealing.

    • House prices in Australia have increased by 7.25 per cent on average every year for the last 30 years, according to Reserve Bank data. That’s a brilliant number, which doesn’t even include the added returns you’ll receive if you rent your property out. However, it’s important to remember that markets do fluctuate, and home ownership a long-term investment strategy.





  1. Forced Savings



  • Buying your first home probably means you’re not buying your “dream” home, but the way you eventually reach that goal is by prioritising homeownership now. When you take out a home loan, the bank effectively owns a large part of your property. You’ll have monthly repayments to make that will slowly increase the equity you hold in your property, and therefore your wealth. This may also force you to become more disciplined with your money, helping you to increase your wealth quicker than if you were renting.



  1. Stability and Security



  • To put it simple, when you purchase a property it’s yours! This will give you the certainty and peace of mind knowing that you will always have a place to call home, without the risk of being displaced by a landlord.


– Cons



  1. Risk and Expenses



  • Property isn’t cheap in Australia, and it’s important to remember the higher its value the greater deposit you’ll need to originally save. On top of this, the interest and fees you pay over the life of a loan can be significant. Be prepared for interest rates to fluctuate during the term of your loan, especially if you have a variable interest rate or when your fixed rate period expires.

  • Then there are the costs to cover stamp duty, maintenance, mortgage interest, moving, lender’s mortgage insurance, inspections, strata fees, council and water rates and much more. What’s more, property isn’t always a guaranteed investment. There’s always a chance that yours could decrease in value, eroding your equity and decreasing your wealth.


Homeownership in the Millennial Age

More and more millennials are purchasing their first homes as older generations are moving on to buying their second. This research-driven culture is supported by the internet where everything they could ever want to know is right at their fingertips. Studies show that millennials are quickly changing the face of real estate. Gone are the days of the glorified fixer upper and the weekend warrior; millennials are busy working their side hustle anyway. New homes and already fixed up homes are the ones that are going to be moving on the real estate market, an ode to the buying power of the millennial generation.


 


MAKING THE RIGHT DECISION FOR YOU 


The question ‘should I buy or rent’ is one that’s often deliberated at great lengths, largely due to the fact that there really is no right answer. As our team alone has witnessed over the past 50 years, the case for buying or renting isn’t a simple one as what’s best will differ according to what you want and need out of property, as well as your financial resources, lifestyle circumstances, family needs and investment goals.


If you’re struggling to find out which direction you should be heading in, trust that our team has a world of experience when it comes to giving advice and helping our clients achieve their property goals. If one thing’s for certain, the marketplace is your oyster and regardless of whether you choose to buy or rent, it’s investing in the right strategy for you that’ll ensure you stay a step ahead.


 


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