Should you buy a house or rent it?  I’m sure this won’t be the last time I write about this as it’s a topic that is getting more and more attention over time.  Rent or buy?  It’s a complex question with an even more complex answer.  I can’t dream to actually answer that for you as each and every person is different, but what I will attempt to do is spell out the key differences so that you can understand things from a financial planners perspective.

Rent money is dead money – I hear this a lot from people when I’m talking to them and discussing how they feel about renting.  It’s a very common attitude and to an extent, it’s right.  If all you do over your working life is pay rent to someone so that they can either enjoy that income or use it to pay off their debt then you’re probably not operating at peak efficiency.  You should, if you’re not inclined to invest or explore your greater options, plough that money into a home that you own instead so that you’ve got an asset at the end of the day.  It creates discipline in paying off the debt and allows you to eventually have stronger cash flow as the difference between what you’re paying off your mortgage and what you used to pay in rent increases.

However, if you’re willing to explore your options, all of a sudden things shift, and we start looking at what a house means to you versus what else you can do with your money.  The core decision to buy a home to live in, the fundamental rationale, is typically divided into two categories.

You want the safety and certainty of owning where you live.

One of the most important human needs on an emotional level is certainty.  Despite the dream that we’re all thrill seeks and can live by the seat of our pants, most people want some certainty in their life.  This could possibly be met with buying a home.  You own it, no one can take it away from you (unless you stop paying your mortgage), you can do with it what you like (providing council approves) and it’s your sanctuary from the world around you.  You can throw parties, bring up kids, have a pet.  Your landlord isn’t going to sell it to you, and when you’re making those ridiculously high mortgage payments to your friendly bank, you’re doing so knowing that you’re building equity in something that you will one day own.  It’s satisfying and makes you feel warm, fuzzy and safe.  Who wouldn’t want this.  There is often some justification around not paying off someone else’s mortgage, however the core of it is that you want that certainty and ownership.  If this is your driving factor, then you should most certainly seriously consider buying a house.

Rent money is dead money.

If you’re in the camp of wanting to buy a property because you’re sick of paying rent and don’t want to feel like you’re paying off someone else’s mortgage but instead want to put the money towards something that you own, then things are a little different. If the emotional needs of owning the place you live in are not your main drawcard, you could consider a few other options. Consider these things:

1. Do you like where you currently live? If you do, consider if you can afford to buy there as well?

2. Do you know where you want to live? Have you considered all your options? We tend to gravitate towards what we know, however trying something new can make a big difference. Would you like to try a shorter commute? Be closer to the beach? Have a bigger back yard?
3. Are you ready to commit to settling down in the one house, the one suburb for an extended period of time? You hear of people buying and flipping properties and moving around, however if you’re in a flat or down market, you won’t have the financial capacity to upgrade or change your house quite as often
4. Are your financial circumstances changing? Are you going to start a family, changing jobs or working in a different area?

There are many more things to consider, however the above list gives you a glimpse of things to ask yourself. Depending on your answers, renting may be better for you. And if you’re renting, what about wasting all that money?

Simple – become the landlord. If you’re paying someone else’s mortgage, become the landlord so that someone else can pay off yours. Seems like a fair exchange? You can actually afford to live in an area that would you wouldn’t be able to buy in, move around a little bit to try different things, all while being a landlord and having someone else pay off your mortgage. Furthermore, with some solid planning, you can build a portfolio of multiple assets. Diversify into shares, buy an additional investment property, top up your super. Statistically, you’ve got a greater chance of being financially independent if you rent and investment your surplus savings into a portfolio of shares, property and super.

However, the true indicator of if you should rent or buy is the balance between how you feel, what you desire and just how hard you want to work for it. What’s more important, the comfort of having your own home, or making more profit. It’s not just about the money.