6 Reasons Why You Should Buy Instead of Rent
Finding a good home entails making the crucial decision of renting or buying your own place. Due to budget constraints, renting a home can be a more attractive option — but if you’re thinking about a long-term investment (and with rates at historical lows sometimes in the short term also!), owning your home has significant advantages that you’ll need to consider.
Homeownership is a big financial decision. So in this article, we’ll outline the top reasons why buying your home is better than renting.
Why Buying a Home Is Better than Renting
1. Buying Can Be Cheaper than Renting in the Long-Term
Renting in Sydney can cost you $800 every week. But repaying the principal and interest for a mortgage of $800,000 can save you $2 per week, which translates to $208 every year.
The money you save can be reserved for your short-term savings. Having money set aside for when life throws a curveball is beneficial.
Rent is money you’ll never get back. You pay for a property you don’t own, and you don’t build equity. Ultimately, your money is building your landlord’s wealth and future, not your own.
Owning a home is a smart way to build lifelong wealth. Although buying a house can be expensive initially, if you factor in the the fees associated with renting, owning your home will actually end up cheaper in the long run.
In many cases, with rates so low, buying can be comparable in cost to renting, and paying off an asset that you own is better than paying off someone else’s.
2. It’s Yours
One of the top reasons why buying your home is better is the satisfaction you get knowing the property is yours to begin with. You’re free to choose what you make of it in whatever way you see fit.
Having the personal freedom to do what you want with your home gives you the breathing space to plan and transform it into your dream house without having to worry about lease contracts, terms, extra fees, bond payments, and other hidden costs associated with renting.
You also never have to worry about rent increases or eviction notices. You can give your family better security knowing the home is yours. Renting costs increase every year, and with that, the percentage of evictions also increases in big cities.
Having a home to your name gives you full control and helps give you and your family peace of mind.
Compared to renting where you have no control over your next-door neighbours, other tenants, and even your landlord, the peace and privacy that owning your home offers is beyond price.
3. It Forces You to Save
If you’re thinking about buying your home, saving for the down payment is crucial. This actually helps motivate you to get your finances in order. You need the right discipline to create a budget and stick to it so you can save the money you need.
Homeowners have been known to be more financially stable because it takes the right discipline to be able to save the amount needed as a down payment for their home. A survey by Genworth shows that homeowners have better money-saving habits. 25% of them pay more than they’re required on their mortgage, and 44% pay their bills and save money as well.
Having your own property allows you to shift your focus from saving for next month’s rent to saving for your future — whether it’s for your child’s college, your retirement, or other long-term goals.
4. You Are Building Wealth over Time
No other asset builds your wealth more consistently than real estate, and the same goes for the home you own. Real estate properties have been known to appreciate or increase in value over time.
Buying your own property and taking care of it for the long-term ensure its value will only increase over time. This is why you hear of celebrities growing their wealth even further by investing in high-value properties or other pieces of good real estate.
This is the “home run” you hear of when people make a large windfall of money. Even when prices for basic goods and commodities go down, real estate values may go up, so it makes sense to build your wealth through property.
Real estate appreciation combined with leverage can offer huge returns. If you buy a property for $200,000 and it appreciates to $220,000, your property has made you a 10% return.
However, you likely didn’t pay cash for the property and instead used the bank’s money. If you consider that you may have put 10% down ($20,000), you actually have doubled your investment, a 100% return.
5. In Times of Emergency, You Can Take Out a Second Mortgage
Because your home is considered an investment, you can sometimes use it to take out a second mortgage wherein you can borrow from the equity you’ve accumulated on your home.
This can be through a home equity loan or a line of credit. A second mortgage is a type of secondary loan added to your current mortgage. You can use this as a secondary financial backup for emergencies or financial tie-ups.
However, you have to be wary that since your home is considered as collateral for the loan, if you are unable to keep up with the payments, the bank can repossess your home.
From Renter to Homeowner: What You Can Do to Prepare
If you have been renting for a long time and have made the decision to buy your own home, the best thing you can do to prepare is to first save up for the downpayment which is usually around 20% of the property’s total value. But for first-home buyers, this can be as low as 5% or even 0% if you have the backing of a guarantor.
The key is to plan your budget accordingly and cut back on big purchases.
Depending on your property of choice, the amount you’ll need to prepare can vary so it’s crucial to prepare ahead and start saving while you’re still searching for your dream home.
This gives you enough time to prepare because you never know when the right property opens up and becomes available. You want to make sure you’re prepared to put down an offer in the midst of competition with other property buyers.
Though it can all seem daunting, keep in mind all the benefits you’ll get to enjoy once you do own your home and set your sight on that same vision for you and your family’s future needs.
Potential homebuyers can also get pre-qualified to check if they are ready to make such a purchase. It’s important to be aware of your eligibility for a loan and what amount you’ll be qualified for so you’ll know the budget you can stick with.
Your Next Step
There are a lot of reasons why owning your own home is better than renting. Not only does it help you build your net worth and save on rental costs, but buying your own home empowers you with the control of giving you and your family the stability they need to create lasting memories as you start a life together.
If you’re planning to buy your first home this year, seek strategic advice from Shore Financial.
Disclaimer: This is general information only and should not be taken as financial advice. Please speak to a Shore financial planning professional before making a decision on your home loan.