Getting a foot on the property ladder doesn’t always mean leaving the lifestyle you love. We look at a few of the pros and cons to help you decide if renting and buying is an option for you.
If you want to get on the property ladder but your budget won’t stretch to a mortgage where you live, buying could still be an option. But before you decide, you need to weigh up the financial and lifestyle pros and cons of renting in the place you love and buying in a place you can afford.
Can I keep the lifestyle I love and still afford to buy?
For many, renting means freedom and flexibility. The ongoing costs of owning a home including mortgage payments, insurance and rates as well as the cost of repairs and maintenance are someone else’s problem.
You can move when you want and live in a place that suits your lifestyle, including suburbs that are well over your budget as a buyer.
Alex was renting a two-bedroom apartment in Randwick, Sydney, for $550 a week, and enjoying the inner city lifestyle it had to offer.
“We kind of got into that Eastern suburbs café culture, and it was half an hour from my work”, says Alex, “I could even cycle.”
When the identical apartment next door came on the market, Alex was interested, but it had a price tag of around $900,000.
“I couldn’t justify stepping up from just over $2000 a month in rent to nearer $4000 a month in mortgage repayments”, he says.
Keen to invest but not over extend, Alex opted for a detached two-bedroomed house in Tamworth, NSW at an affordable $200,000. The property was tenanted and earning $300 a week rent, more than enough to cover mortgage repayments and running costs without overextending.
“It was about getting into the market and making sure I had a foothold”, says Alex, “then paying it off pretty quickly and accessing the equity down the track”.
Investing in a property you can afford while renting to keep the lifestyle you love can be a great option, but you still need to weigh all the pro and cons.
So what’s not to love about renting?
Buying a house builds wealth, and long term renting can seem like you’re throwing your money away by paying someone else’s mortgage instead of using it to build your own equity.
As a renter you get very little say in how long you can stay in a place, which might not be an issue when you’re younger but if you’re renting when you start a family, moving regularly could become a major disruption.
Plus you’re limited on the changes you can make, and you’re reliant on the owner to make repairs and organise the upkeep of the property.
Long term renters can find themselves struggling to get their first home loan when they do decide it’s time to buy. Lenders want evidence that repayments will be met for the life of the loan, and that can be more difficult to demonstrate after 50 years of age.
Buying in an affordable suburb and renting out the property can give you the best of both worlds. Use rental income to cover some or all of the cost of a mortgage on a more affordable home, while still enjoying the lifestyle you love.
How do I get a foot on the property ladder?
Head west from the Sydney CBD and there are plenty of suburbs within 20km where the median unit price is less than $500,000. It’s the same story in the other capital cities. Buying in an affordable suburb is one way of getting your foot on the property ladder.
Newer suburbs or those further from the CBD might not offer the lifestyle you’re looking for now, but could suit you in the future.
But lifestyle and affordability aren’t the only issues, and the pros and cons of buying a property you don’t plan to live in could also influence your decision:
Property Investment Pros
• You start building wealth in an asset that’s likely to grow in value
• You own a home you can move into when it suits your lifestyle choices
• Ownership costs may be offset against rental income
• Ownership costs are usually tax deductible while the property is tenanted
• You get the security of home ownership and the flexibility of renting
Property Investment Cons
• Rental income might not cover your mortgage payments or other costs
• Interest rate rises could mean higher mortgage repayments
• You still need to save enough for a deposit and up-front costs
• There’s no guarantee you will always have tenants
• Looking after a property you don’t live in takes time and effort
Buying your first home is a big decision, whether you plan to live in it or just want to get a foot on the property ladder. The good news is that an Aussie Broker can help you find the right mortgage, whatever you decide.