Owning a home is often touted as the “Australian dream” but renting has plenty of advantages and is often underappreciated. In fact, most people will rent for a large part of their adult life and have positive experiences in a range of properties before going on to own their own home. While your personal circumstances will largely influence whether renting is the right path for you, here are some of the upsides and downsides of leasing a property.
Pros
- Freedom – when leasing, a contract typically lasts between six months and two years. This gives you plenty of flexibility to choose to renew or go elsewhere, unlike a home you have bought where you are locked into a mortgage for up to 30 years.
- Less maintenance – while renting, you might be expecting to keep a house in working order, however, the responsibility of maintenance – such as repairing exteriors and addressing plumbing – falls to the landlord.
- Low upfront cost – saving a deposit for a house takes years. Leasing only requires funds to pay as little as one month’s rent upfront and your bond.
- Good for short term – homes aren’t always meant to be forever and you might be testing out an area or relocating for a short period of time for work. In these cases, rentals are perfect.
- Social – renting usually comes with the opportunity to get housemates to share the load which can be great fun, especially in your younger years.
Cons
- Lack of security – even though a lease will create some protection, often renters can experience change they can’t control. For example, if a landlord chooses not to renew a lease you must leave.
- If they sell the property during your tenancy, you could be required to vacate earlier than planned.
- No investment potential – unfortunately, rent is paying off your landlord’s mortgage – not yours – so if the house gains value while you are living in it, you don’t benefit.
- Renting may cost more – it’s a common misconception that mortgage repayments are higher than rent. While owning a home may have upfront costs, as you pay down your mortgage over time you increase the equity in your property.
- Rent rises – landlords can legally increase your rent at the end of your lease agreement. The amount it can increase is restricted in each state, however you will likely see the cost of rent increase over time.
- Restrictions – if you want to hang a picture, paint a wall or get a pet, this cannot be done in most states unless you’re given prior approval from your property manager or landlord.
Rent to own
With skyrocketing real estate prices, it can be hard for first time buyers. Often young Australians are struggling to save up a deposit in a rising market but there is one alternative option that is becoming more commonplace to combat this – the rent-to-own scheme.
A rent-to-own agreement is a lease that gives the renter the right to buy the home at the end of the rental period at a price agreed on when the contract was signed. In theory, this will shield the buyer from the usual upfront cost of buying a home as they can benefit from the equity in the home when it comes time to buy.
However, there are downsides. The buyer is not on the title and usually the deal includes paying above market rent in return for locking in a sale price.
If the market takes a downturn, you will be left with an agreement to buy a house priced well above the market average. A small upfront deposit – which people can lose if they are unable to make a payment when the agreement expires – is also required.
Regardless of the risks, these types of deals are becoming more common for aspiring home buyers and may be the perfect answer for someone super keen to get a foot in the property ladder.
Rentvesting
Rentvesting is a path to home ownership where you buy an investment property but live in a rental home that suits your lifestyle – usually in the inner city.
It’s useful if where you want to live is out of your price range, or what you can afford is not big enough for your family, but you still want to get your foot on the property ladder.
Any profit, or capital gain from the increase in value of the property, will also come in handy when you want to upgrade to your forever home down the track.