STUDY: Are you better off renting or buying?
As the saying going, rent money is dead money.
But with all the hidden costs involved with home ownership – stamp duty, state levies and council rates (just to name a few) – is buying a house really a smarter investment over renting?
According to economists, Dominic Crowley and Shuyun May Li, the answer is yes.
The pair set out to determine which of the two was the “superior investment” and published their findings in a research paper.
While similar research out of the US found renting to be the better option, when it comes to the Australian property market Crowley and Li say otherwise.
“Our results suggest that buying was financially more favourable than renting over much of the past three decades in all Australian capital cities,” they said according to the Sydney Morning Herald.
The research involved creating two scenarios and comparing the outcomes using figures from 1983 to 2005.
Buyers: a group of people who purchase a property with a 20 per cent deposit. They opt for interest-only and do not make any extra repayments. After ten years, they decide to sell and deduct upfront and ongoing costs associated with owning a property.
Renters: this group of people rent and invest their deposit into shares and term deposits over ten years. At the end of the period, renters sold their shares and taxes are applied.
The results showed, that even though prices can fall, buying in Sydney was the best strategy in all of the years except four, 1989-90 and 2003-04)
Melbourne had similar results, with buying being the best option in all but six years.
Most importantly, the authors concluded timing is critical.
As the Sydney Morning Herald puts it: “The results shows that prices can fall or stagnate and it is sometimes better to rent. However, undeniably, buying has proved the superior strategy in more years than renting, at least during the period studied.”
With interests rates as low as they are, now is a good time to get into the market. If saving a 20 per cent deposit isn’t realistic for you, get in touch with a Mortgage Broker or attend a First Home Buyers Courses and receive half price tickets with discount code SW50BLG
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