Is it really cheaper to buy than to rent a property in Australia? Our guest Finance Strategist, Richard Khuong, has the following tips for you.
A client of mine was recently informed by his landlord that they were selling the apartment that he was living in. He was thinking about purchasing the property to live in but wasn’t sure whether the dollars would work out right. I helped him calculate the differences to see how he would be positioned.
Situation
Rent: $370 per week
vs
Purchasing the property for $410k with a 20% deposit.
Part A
Loan amount of $328k
Interest rate of 3.8% Principal and Interest repayments is $352 per week
= +$18 difference per week
Part B
Additional cost associated with owning the property vs renting
Council Fee’s – $275 per quarter
Strata – $620 per quarter
Water $175 per quarter
= -$82 per week
In this situation, it will cost the client an additional $64 per week (Part A+B)
While it is not cheaper than paying the weekly rent when factoring in the additional cost, the question becomes: would you rather be paying $370 to help your landlord pay off their mortgage, or does the $434 per week make more sense going towards your own home?
Every person has their own set of unique circumstances which will determine if it makes sense to rent or buy. What you do with the funds that you have in excess, the potential capital growth of the property, the freedom of owning the property, or just moving wherever you want can be other factors to take into consideration.
If you are renting and you have some deposit behind you, have a look through your own numbers and see if it still makes sense to continue renting. It might surprise you.
Remember to also add a buffer in case unforeseen repairs occur and interest rates move. Fixing the loan could be an option as well to have some security on rates over the next few years.
Reach out to me if you need some help in working out the numbers and to look through different scenarios. Happy to help, obligation free!
Richard Khuong
Director, Simple Easy Finance Pty Ltd
Property & Finance Strategist
E: [email protected]
