For more detailed explanation about advantages and disadvantages, head to : http://discover.realestate.com.au/buying/news/buying-news-rent-or-buy-the-13m-question
BUYING ADVANTAGES:
(1) As the value of your property increases, so does your net wealth.
(2) You are more in control of how long you can live in your home.
(3) Your mortgage repayments remain about the same over the life of the mortgage with slight interest rate changes
BUYING DISADVANTAGES:
(1) Mortgage repayments are usually higher than rent
(2) Have to pay for repairs, maintenance, rates, taxes, insurance, etc. All
these extra costs add about 20 per cent of whatever the rent would be on
the property.
(3) Buying and selling costs restrict you as to how often you can move.
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RENTING ADVANTAGES:
(1) Weekly rental is usually less than the mortgage repayments.
(2) You can shift homes on a frequent basis
(3) You can rent where you’d like to live but you may not be able to afford to buy in the same location.
(4) No repairs or maintenance costs. Landlord pays for all the expenses
RENTING DISADVANTAGES:
(1) Your time in your home is determined by the landlord and the lease. Once the lease is over, the landlord can tell you to move on
(2) If you don’t do the right thing, you can be evicted.
(3) The landlord and/or property manager has the right to come into the property, given the correct notice
(4) Rents will continually increase.
THE PROVE AS TO WHY BUYING WOULD MAKE YOU A MILLIONAIRE!
Assumptions:
- You are a first home buyer, 25 years old and based on life expectancy tables, you should live until 75
- I have used a $300,000 unit in my example
Renting
- An investor expects a 5 per cent return from a $300,000 unit
- Rent on a $300,000 unit @ 5% = $15,000 pa or $288 per week
- Rent increases on average at about 7 per cent a year, which means it doubles every 10 years
Buying
- A first home buyer requires at least a 5% deposit = $15,000
- First home buyer borrows $285,000 @ 6.5%, interest only for 30 years = $21,617 or $416 per week
- Home ownership expenses, such as rates, taxes, insurance,
repairs, etc, average approximately 20% of the equivalent rental income =
$58 per week
- I have calculated capital growth of about 7% per annum, which means it doubles in value every 10 years
This simple example above shows that you that it costs $9,600 pa or
$186 per week extra in the first year if you buy the unit rather then
rent it. This assumes that you have a $15,000 deposit and the FHOG &
FHOB pay for all other buying costs. Now let’s look at the long term
picture.
In summary, if you are now 25 years of age, by the time you are 75,
you would have paid a total of $5,655,000 in rent over 50 years and your
net worth is $0, if you didn’t buy any other assets.
However, if you bought the unit, you would pay $649,000 in mortgage
repayments over 30 years and $1,131,000 in home ownership expenses over
50 years, totalling $1,780,000, making a difference of $3,875,000 in
cash payments.
So there you have it - $13,475,000 difference. The home owner has
$9,600,000 million in equity plus $3,875,000 better off than the renter
because they made the decision to buy the unit rather than rent it.
