The renting versus buying argument is a very interesting one, with many people having different opinions on which is best. But it purely comes down to your situation and what your needs are.

I’m going to look into a few advantages and disadvantages of both, to help you decide what’s best for your current situation.

 

Renting

The big benefit of renting is that you don’t need to put down a big deposit to rent a house, however currently it’s cheaper to afford the mortgage repayments than the average weekly rent.

If you are thinking about buying a house, try and save at least 20% of your household income. This isn’t easy because when there is money sitting in your bank, it can be tempting to spend it on nights out, a car or a holiday. The good thing is that money you save can be used with grants to get the deposit you need to buy your first home.

No maintenance costs:

The next upside of renting is that you don’t have the maintenance costs that are associated with buying a house. In a rental property all the upkeep costs fall to the landlord, as well as other costs such as rates. The flipside to this is you don’t have the freedom to make adjustments to the property without consulting the landlord.

Freedom to move around:

As a renter you usually have rent agreements that are around a year. This means that because you aren’t locked in for a long period of time, you have the freedom to move around if you want to. This can be good if you are young and are looking to move for a job or just want a change of scenery.

The flipside is that you don’t have much security as renter. And if the landlord wants new tenants, they won’t renew your tenancy agreement. This may leave you in a vulnerable and bad position especially if you did not want to move.

Wasted money…?

One of the disadvantages of renting is that the money you are paying, gives you no capital. Even if you aren’t thinking about buying a house you’ll still need something to fall back on. If you have been renting all the way up until retirement you will need some form of savings or other assets to keep you going once you retire.

Buying

Make your mark:

The best thing I love about owning my own home is that I can do whatever I want (within council limitations). I can paint rooms, re-carpet or go to the extreme and replace the kitchen or bathroom or extend to add a new bedroom. So many first home buyers see this as an important part of deciding whether to rent or buy.

Security:

Buying is a lot more secure than renting. This can be an important factor if you have children in school and you want to keep them in the area of that school. And it removes the stress of moving, which I try to avoid!

Cheaper then renting:

Currently in New Zealand as at 1 August 2016, it’s cheaper to afford the mortgage than to rent. This is based on the average income of a first home buyer and the median rent for a 3 bedroom house in New Zealand. But this does mean you need the deposit for the mortgage, which is a barrier, but there is financial assistance available in New Zealand for first home buyers.

Saving a deposit for the average kiwi household is 3.6 years (with a saving rate of 20%) to save a 20% deposit, and less if you are saving a 10% deposit.

Rates:

Owning your own home will mean that you’ll need to pay the council rates, these can be anywhere between $2,000 – $6,000+ per year, which is all dependent on the council and the CV of the house. You can find out the rates of any house in New Zealand by going to the council’s website that the house is in and look up the rates, here is the rates website for Auckland  and Christchurch.

Capital Growth:

Capital growth is the increase of land and house value over time, due to market growth or by adding value to a property such as renovating or subdividing. Not all areas experience capital growth and it’s not consistent. Which means that a property will not necessarily appreciate at a certain rate each year.

Over the last 10 years in New Zealand, residential properties have increased at an average of 58%.

The property market works in cycles with periods of booms (as seen in Auckland currently) and busts (last was 2007). This cycle is on average 10 years from peak to peak, and properties in New Zealand’s main cities have approximately doubled during each cycle. Capital growth is affected by supply and demand (as seen in Auckland and Christchurch), population and economic conditions.

This increase in property value means the equity in your house increases and can be borrowed against to upsize or purchase an investment property. This is described further in 10 Reasons to Invest in Property.

 

Renting and buying both have positives and negatives, that’s why it is important to look at what’s most important to you and your situation. If things change you can just reassess your situation and needs to see if it’s better to rent or buy.

Hopefully this has helped you and you have a better understanding on whether renting or buying is for you.

If you are thinking about buying, be ready and get pre-approved for your loan today.

 

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budgeting, First Home Buyers, Strategies, Tips