Owning a home can seem like an impossible dream for many young New Zealanders. Even if it is financially achievable, is buying a home – with the attendant debt – the best decision? There is no one correct answer, of course, but when it comes to the rent or buy question there are a few common advantages of each option, including:
Buying a home
A mortgage is a form of enforced savings.
Having the discipline of making regular mortgage repayments is a great way to force you to save, with the benefit that part of your monthly mortgage is going towards your own asset.
You can make your home your castle.
You can paint, renovate and landscape at any time without having to ask permission or be concerned about breaching a rental agreement.
It will hopefully build your wealth.
Providing you choose a house wisely, your investment should increase in value over the long term.
It gives you reasonable certainty about repayments.
While interest rates do fluctuate, a mortgage does give you some certainty and ability to budget for repayments. Rental costs, on the other hand, can fluctuate as a result of supply and demand.
It gives you certainty of tenure.
Becoming a part of your local community and having your children attend a local school for a number of years can be easier when you have certainty of tenure. Living in your own home means that you are not at risk of having to move due to a rental agreement finishing.
Renting a home
More money in your pocket right now!
Renting can significantly relieve financial stress and free up money for other activities or investments. This can be a great benefit during the years when you may be trying to start a family or start a business. Renting also means there are fewer ongoing costs to worry about; the rates, insurance, general maintenance and repairs are covered by your landlord!
Greater flexibility about where you live.
Increasingly we are living in a global society and renting makes it easier for you to move location if you want to. It could be for a career change, for family reasons or simply for adventure. When your rental lease expires, the world is your residential oyster.
Greater flexibility about house size.
As your family composition changes, so do your housing needs. The ideal house layout for young singles is different to the ideal house layout for a family with young children – or teenagers. Renting makes it easy and cost effective to change your home to suit your changing needs.
Renting – and buying an investment property
A third possibility is to buy an investment property and rent a separate place for yourself. What are some benefits?
It can be tax-effective.
While your rent may be “dead money”, the mortgage and other costs associated with the investment property will be a tax deduction.
You can invest in property at a lower cost.
While you may not be able to afford to buy a house in a location that you wish to live in, you can have exposure to the property market by buying a smaller, less-expensive place as an investment property – and renting something in your ideal location!
At the end of the day, after weighing up the options and obtaining professional advice, you should do what feels right for you and your family. Whether that is to rent, buy or do both, the important thing is that it should be the right decision for you.