To Rent or Buy Part Two (The Cons of buying)

To Rent or Buy Part Two (The Cons of buying)

In part two of the five-part blog on the pros and cons of renting vs buying the focus is on the cons of buying to help weigh up both sides of the buying argument.

Ownership costs. According to the Reserve Bank of Australia (RBA), that the costs of buying that house including stamp duty and other buying costs including conveyancing around about 4.3% for the average home buyer. The actual cost of selling your home adds up to about 3.0%, this percentage includes both real estate agent commissions and the advertising costs for the property. When adding up both totals the combined cost is roughly on average 7.3%. this does not include however the ongoing running costs of owning your own home that the RBA estimates to be at least 2.6% per year. Ongoing costs include body corporate fees, water, insurance, council rates, depreciation costs and repairs. The buyer needs to understand that the transaction costs of buying and selling a property can be quite high.

Interest repayments. If we take the well-known saying that rent money is dead money then I guess in reality, so are interest repayments classified as dead money too, unless of course you consider giving large swathes of money to the banks a plus. On the average, variable interest rates are currently about 4.50% which means that you would pay about $18,000 a year on a $400,000 loan to buy a $500,000 house. This amount you pay for interest to the bank is roughly the same amount as the $19,500 you would pay to rent a similar value property in a twelve month period. Just remember however that interest rates are at all-time low and have been for some time but what about these interest rates in three to five years from now, as it seems fairly likely they will rise sometime in the near future. Over time the RBA estimates that long term variable mortgage rates have been about 6.20%. This equates to your average interest repayments of $24,600 plus your ongoing costs of maintaining the property making it more expensive than renting.

Opportunity cost. This is a cost that is often ignored or at least not understood very well. It refers to the cost of having your money tied up in a property versus having it available to use elsewhere. In simple terms, opportunity cost refers to the returns you could get elsewhere instead of putting down a house deposit. That could be returns from cash deposits (currently about 4%), a diversified portfolio (historically 8%), or investing in your own business.

You now have from the first two blogs both the pros and cons of buying your own home, something only you can decide for yourself. When choosing a new home always insist on a quality building inspection company to obtain your building inspection reports and pest control reports. Australian Property Building Inspections provides quality and professional building inspectors throughout Australia to ensure your obtain the highest quality building inspection reports.