Is it better to rent or buy property in 2022?
The question of whether you should rent or buy has always been a dilemma for everyone who wants to get into real estate — we always wonder which option is more profitable and cost-effective.
But first, it is important to establish where you want to buy or rent and whether you can afford it, as this will heavily influence your search for the right property. Ask yourself what your budget is and determine where you want to live.
As you look for a potential home — to either purchase or rent — you have to know your non-negotiables in terms of its location, size, features, and other essential factors that matter to you.
Some buyers might prioritise a bigger space, convenience around getting to/from work, or accessibility to public transport, schools, and so on. Either way, it must be a property that fits your lifestyle.
You must also define your goals. Renting gives you the freedom to keep moving locations, while buying a house will help you settle down for a longer period or for good. Is your future uncertain and do you have plans to move to a different city or state, or do you finally want to have your own home? Figuring out these goals will help you narrow down your options.
The current condition of the market
The housing market is going through a tough time. Rents are rising, and it's hard to find a property that isn't out of your price range. While property prices are slowly going down, the current interest rates make it a challenge to purchase a house right now.
After the property boom that occurred during the pandemic, the property market is now on a decline as interest rates rise and inflation across the globe affects potential buyers. In June 2022 alone, Sydney’s property values have declined even more at 1.6 per cent in comparison to the decline in May at 1 per cent and housing values in Melbourne fell by 1.1 per cent.
More and more people are selling their homes in an effort to offload their property and avoid further loss of value. This is a chance for potential buyers to get a property under market value, however, caution is important here as something might be wrong with the property for a seller to desperately let go of it.
This is a great opportunity for investors and home buyers as property prices are steadily going down, however, the rising cash rates can make it difficult for them to secure a loan or afford to pay their mortgage. Interest rates will rise slowly but surely over the next few years. so you should think about how much money you can afford when deciding whether or not buying a house is worth it (and remember: this isn't just true in 2022).
On the other hand, the rental market continues to face a crisis as vacancy rates fall while rent goes up. Rental properties continue to increase their rates, which makes it difficult for renters to find one that fits their budget. As borders open and international migration recovers, demand continues to rise, leading to a shortage of supply.
Rents are also increasing due to a growing demand for housing from people who want to move into cities or buy homes within these cities — which means more people will be moving into smaller spaces — as well as growing numbers of people who want to rent their homes rather than buying them outright. This has resulted in higher average rents across the board — not just for apartments, but for houses too.
Now that we know the condition of the market, let’s take a look at the pros and cons of buying or renting.
Pros and cons of renting
Renting your home is a popular alternative to buying and can be a good option for many. It gives you a chance to get into the housing market without taking on all the responsibility of owning property.
Here are some pros and cons of renting:
Pro: It’s the best way to ‘test the waters’ before buying a home
This is one of the best reasons to rent — it allows you to get used to the idea of owning a home. When you’re ready to buy property, it’s better if you know what that process is going to be like and how much it will cost. Rental properties are also great options for those who don’t want to take on mortgage debt.
Pro: Renting gives you the freedom to choose the neighbourhood and location that best suits your needs
You can change your mind about the property at any time, and renting means you don't have to worry about losing out on money. You may want to rent from someone who has a good reputation and is reliable, or maybe you just want to live somewhere for a short period of time before moving on.
Pro: You can save money by renting rather than buying
The deposits required for renting will be much smaller than that for buying, especially if the property is located in a capital city or high-demand area. Renting a house or apartment gives you the opportunity to save up for a property you can buy in the future, or put your money in other forms of investment such as stocks or bonds.
Con: It can be expensive in the long run
Renting may be an expensive way of living. Some people would say that renting is “dead money” because rental payments are permanent, unlike a mortgage that you can pay off eventually. The rental market is very competitive, so finding good deals on apartments or houses can be difficult.
Con: You don’t have much control over the property
Renters are not as involved with their homes as homeowners are. They don't have as much control over what goes into the house and how it looks. You have to abide by the policies imposed by the landlord, hence, you're not able to make any changes in the house, such as installing new appliances, painting walls, or having pets.
Pros and cons of buying
Buying a home is a big decision, and it can be a lot to take in. There are pros and cons to buying a home, so let's look at both. A first-time buyer (and even a seasoned investor) should consider the following before making any decisions.
Pro: Buying a house is a long-term investment
This is important because it gives you the ability to use your money for other things besides just renting or buying property. Being a homeowner gives you the freedom to invest in other things since you don’t have to worry about where to live.
Property prices will rise over time, and when you finally take the plunge to buy one, you’ve locked in its value. This means you got the property at a lower price when the market is on the rise and in the future, you can gain profits should you decide to sell it.
Pro: You have the freedom to do whatever you want with it
Having your own property gives you the stability that renters cannot have. You don’t have to adhere to the policies of a landlord. Nobody can’t kick you out immediately should you fail to make payments on time because you have some control over your mortgage.
The home you buy can be the foundation of your future plans, including marriage, children, and retirement. You have a stake in the property and will have a say in its future. Renovations, upgrades, renting it out to others, and even having pets around the house — you get to do all of this because the property is yours. Buying real estate provides an extra layer of security when it comes time to sell down the road (or even retire).
Con: When you buy a home, you are making an investment — an expensive one!
You need to be aware of the cost of taxes and maintenance before committing to this purchase. More often than not, you’ll need a mortgage which can affect your cash flow if you’re not prepared for it.
Con: You’re tied down to the location of your home
Location is usually paramount when it comes to buying a house, so this could mean that some homes are out of your price range or don't have enough space for everyone who will live there. It may be more difficult for you to relocate if the need arises.
So, rent or buy?
Buying is a great long-term investment while renting is generally more short-term. If you aren't sure whether your purchase is right for you, then renting might be the way to go.
Buying is often more suitable if you know the area you are living in is where you want to stay long-term. It’s also a good way to build up equity, which may then be cashed out when you do choose to sell and move on.
The decision whether to rent or buy depends on your long-term goals and how much risk you are willing to take. If you are a home buyer, you will be paying a mortgage but also have an asset that can be sold later in order to make money from it.
However, if buying property is not an option, renting can better allow flexibility.
The takeaway from this article is that buying property is a great long-term investment while renting is more short-term. If you want to invest in real estate, it's important not just to do your research but also to consider the costs involved with buying or renting property each year.
There are many benefits for both buying and renting, so you should look at which option works best for you at any given point in time!
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