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You’re ready to move out – but should you buy or rent your first home? There are pros and cons to each option. The following guide could help to decide whether buying or renting is the best option for you.
Buying: the pros and cons
Buying property is the less popular option due to being more expensive upfront. However, it’s also a better investment and comes with more freedoms. For this reason, it is sometimes viewed as the more financially sensible option.
The pros of buying
- You own the property and can make any improvements to it that you want.
- Monthly mortgage rates are generally cheaper than rent.
- By paying off your mortgage and making improvements, you can build equity. This is wealth that you can then access by selling the property.
The cons of buying
- If you cannot buy with cash (which is most first-time buyers), then you’ll have to apply for a mortgage. This usually involves saving up a large down payment of several thousand dollars.
- As you own the property, you are financially responsible for making any repairs as a result of wear and tear.
- Property prices fluctuate and you may not always make back your money when you sell if the market crashes.
Renting: the pros and cons
Renting is more popular due to lower upfront costs. However, you do not own the property – you never get back the money spent on rent and are governed by the rules of the landlord. For this reason, it tends to be seen as the less ideal option.
The pros of renting
- While you may have to pay a deposit upfront, it will be a lot cheaper than a down payment (you also get the deposit back if you ever move out).
- You do not have to pay for repairs on your property if there is damage caused by wear and tear – it is the responsibility of your landlord instead.
- Moving into rented property is generally a faster and easier process.
The cons of renting
- You do not own the property and cannot make any renovations without getting permission from your landlord. This could include anything from recarpeting the floors to putting a nail in the wall.
- Rent is generally more expensive than a monthly mortgage rate.
- You never get the money back that you spend on rent. It all goes into your landlord’s pockets for them to spend at their leisure.
Buying is the better investment – but can you save up the down payment?
Unless you’ve inherited some money or your parents are able to chip in, you’ll need to save up the down payment yourself. Saving up thousands of dollars isn’t easy and can take years for some people. Saving up money with someone else (such as a partner or sibling) could make the process quicker.
If you’re not in an urgent rush to move out, you may be able to spend a few years saving up this money so that you can buy your first place. However, if you’ve got a job lined up far away that requires you to move immediately or you can’t stand living with your parents any longer, you may find that you don’t have the time to save up a down payment, in which case renting your first home may be the only option.
What does the property market look like?
It could be worth seeing what properties are out there so that you can determine whether now is a good time to rent or buy. You could find that there are lots of great properties to rent within your budget and not so many great properties to buy. Alternatively, the opposite may be true.
You should also consider what way prices are going – especially when buying. If a property crash seems imminent, it might not be a good time to step onto the property ladder and you may be better off renting.
What are your future plans?
Most people buy a property with the intention of living in that property for a few years while they accumulate equity. If you’re moving somewhere for a year, buying, therefore, may not be a sensible option – some landlords allow tenancies of twelve of even six months.
With a well-paid job, you may still be able to save up money for a down payment while renting. It will be a lot harder but could allow you to move out and live independently sooner instead of having to stay at home a couple more years. That said, you may not mind living with your parents.