Do Rentals Mean Losing Money?

Rent VS Buy

The general, common saying that living in rentals equals to throwing money away is certainly not new, is it? And at first, it would seem this way. Rental means you don’t buy the house you live in, compared with purchasing a house that, in time, becomes yours eventually. Still, various aspects are often overlooked concerning this situation.

The fact is that the standard cliché phrases regarding the effectiveness of rentals have an overreacting approach. Allow me to explain the reason rentals might be a better choice compared to buying a house in some situations.

Are rentals equivalent to throwing money away?

The answer to this question is both yes and no. The fact is that, to some extent, renting might equal losing money. The logic is quite simple. As you rent, you don’t invest that sum of money, which doesn’t eventually grow or bring you any further benefits.

On the other hand, the non-deductible interest on home loans can also be conveyed as a waste of money for a change. Thus, renting is most of the times increasingly more convenient and affordable. Sometimes, renting might be the better choice compared to a mortgage. In the same respect, a house is an asset that is eventually affected by inflation, which comes to the disadvantage of most homeowners in the long run.

Here’s how it is. Let’s say that you pay rent, while, at the same time, you invest in shares or super. If you invest the difference between the sum you pay for your monthly rent and the amount of money you would normally pay for a home loan, there’s a strong chance your financial situation will significantly improve. When making mortgage repayments, you are less likely to make other investments. Still, you need to settle whether this choice is the right one for you or not.

The real costs of buying

If rent money equals dead money, then interest repayments equal dead money as well. The average interest rate in Australia at the moment is estimated at 4.50 percent. This means that you would be required to pay $18,000 per year on a loan of $400,000 if you wish to purchase a house valued at $500,000. This sum is almost as much as you would pay for a year of rent. Additionally, interest rates on variable mortgages are on the growth and are estimated to reach 6.20 percent in the long run.

It is needless to point the ownership costs that accompany house ownership. The ongoing costs of a property include repairs, fees, insurance, depreciation, council rates and so on and so forth. Not to mention that when buying a house, there are costs including stamp duty, commissions and so on.

The bottom line is that it’s up to you to decide whether opting for rentals is a better choice for you than purchasing a home. You ought to consider your personal needs and financial situation, as well as your plans for the future.

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