“Are you still renting? Why don’t you buy yourself a house already. Rent money is DEAD MONEY!”
If you rent, I’m sure you have come across one of these people at least once in your life. And it’s most likely coming from a loved one who genuinely cares about you.
It’s easy to understand how they come to this conclusion, too. At the end of every month you have to fork over hundreds (sometimes thousands) of your hard earned dollars for nothing more than the privilege of having a roof over your head. If you were to buy a house however, at least your payments are going towards something you can call your own. That’s the common theory amongst the vast majority of Australians (especially parents) at least.
If you have the deposit ready, is it always better to buy than to rent?
Why you should buy:
Let me just make one thing clear before we delve into this debate. I’m going to be looking at this purely from a financial point of view. There are many intangibles that come from buying a home that you can’t measure in dollars. Your home is your castle that you raise your family in. There is an emotional attachment when buying a home which varies greatly from person A to person B.
I personally only really see one major benefit from buying a house to live in.
It’s a pretty major benefit, too. When you rent you are always at the mercy of the landlord. Rent could be raised at the end of your lease. Leaky pipes may never be fixed. You’re not allowed to buy a cat because it’s against the rules. And what happens if the landlord decides to sell to home owners who want to move in and kick you out? You have to find another place to live, and anyone who has ever moved or helped move someone can attest to how frustrating that is.
Some people just can’t save money.
If it’s in their account and disposable, they just can’t help themselves and must spend it. I don’t have this problem personally but I understand that for many people it’s an issue. So how can you save money when you spend every spare dollar you earn?
Unless you’re on an interest-only loan, you will be paying some principal in your repayments each month. It’s the principal that actually pays off the home, the interest is just how the banks make their money.
The principal payment therefore is sort of like a forced savings mechanism. I say ‘sort of like’ because it’s a bit more complicated than thinking about it purely as savings. Theoretically if you bought your house for $X amount of money and sold it 30 years later for the same price after paying it off, then yes you would be essentially receiving a lump sum of all your principal repayments you have made during those 30 years (not factoring in buying/selling costs and inflation).