Rent vs Buy

“Right now, it’s better to rent rather than buy”. If only it were that simple.

The lead story on 60 Minutes last Sunday night was called ‘The Big Squeeze’. It contrasted a distraught couple who were drowning in debt and about to lose their home, with another much happier family who’d chosen to rent rather than buy.

The message of the story was clear: right now it’s better to rent than buy.

If only it were that simple. Last week I did the figures for a young couple wanting to buy their first home, and on a pure numbers basis it worked out to be a line-ball decision on whether they should buy or continue renting.

That wasn’t the outcome I was expecting – I’d had a feeling that renting would be much cheaper.

What I hadn’t counted on was that the figures were skewed by the thousands of dollars in government bribes they would be given to buy a home (which, by the way, distort the market and encourage exactly the wrong people to move into mortgage stress misery).

A few weeks ago I caught up with a successful real estate agent who lives in the expensive inner city Sydney suburb of Balmain. He confessed that with the sky-high price of real estate he’d chosen to rent rather than buy.

Let me be clear: this particular couple was following the ‘Barefoot 20-10 Rule’ (they had a 20 per cent deposit and had factored in making repayments as if they were at 10 per cent).

Had they not been able to clear those hurdles I wouldn’t have advised they buy. (And if they didn’t listen, I’d have made them go to the 60 Minutes site, watch the story, and see the pain in those poor people’s hearts).

Yet it’s a much different story if you’re older and looking at trading up to a million-dollar trophy home. In that case you’re much better off renting than buying – and investing the difference.

Here’s why: A $300,000 property may rent for $300 a week, an $800,000 may rent for $800 a week, but a $2.5 million home may still only rent for $1,200 a week.

Case in point: a few weeks ago I caught up with a successful real estate agent who lives in the expensive inner city Sydney suburb of Balmain. He confessed that with the sky-high price of real estate he’d chosen to rent rather than buy: “The house I rent for $1,000 a week would cost me $3,000 a week to own – so I’m well in front.”

Tread Your Own Path!