Historically low-interest rates have some experts suggesting that buying a home could now be cheaper than renting.
We take a look at how the cost of renting a home compares to buying one in Perth right now.
Location, location, location
How much it costs to buy or rent a home depends on where it is.
Recent research from the Real Estate Institute of WA (REIWA) shows there are no fewer than 112 Perth suburbs where it is cheaper to buy than to rent.
Suburbs like Brentwood offer buyers good value compared to renting. Brentwood’s median house sale price is $655,000, with an approximate weekly mortgage cost of $573, which is $377 less than the suburb’s median weekly house rent price of $950.
Other suburbs where it is cheaper to buy than rent included:
Of the top ten suburbs in REIWA’s list, eight have a median house sale price of less than $300,000, offering real opportunities for first home buyers to leave the rental market or to rentvest.
But if there are 112 Perth suburbs where buying is cheaper than renting, that means there are at least 238 suburbs where it is still more affordable to rent than it is to buy. And for many tenants, homeownership is not the primary goal. Tenants often prioritise location and choose to rent in an area where they might not be able to afford to buy. Some enjoy the flexibility renting offers, while others are only in town for work.
The hidden costs of renting
- Overlooking the need to save
Owning a home can be seen as a type of forced saving. When you pay your mortgage every month, you’re putting money towards an investment that is likely to rise in value over time. But when you’re renting, it’s up to you to make sure you’re saving some of your pay packets each month.
The upside of this is the opportunity to diversify your investments. While homeowners often have all their savings tied up in one property, renters can spread their risk, which may lead to increased returns.
- The possibility of rent increases
While many tenants choose to rent for the flexibility it offers, the downside is the lack of stability. Even if you want to stay on when your lease ends, you may not have a choice if your landlord has other plans.
Tenants are also subject to rent increases. How often rent can be increased is governed by WA law and depends on the type of tenancy, but it cannot be raised more than once every six months and landlords must provide at least 60 days’ notice of any increase. This gives tenants the chance to find a new home if they would rather not pay rent at the new rate.
The hidden costs of homeownership
- Transaction costs and ongoing expenses
Purchase price aside, owning a home can be expensive. The transaction costs, such as stamp duty, government fees, conveyancing costs, and loan establishment fees that come with buying property are not to be sneezed at. They amount to around 6 per cent of the purchase price, according to a Reserve Bank estimate.
There are also the ongoing and often unpredictable expenses of homeownership to consider, including the interest repayments on your mortgage, repairs and maintenance, council and water rates, insurance, depreciation and possibly strata fees.
- The risk of having a single investment
Buying a house is a big commitment. Once you’ve diligently saved your deposit and bought your home, all your financial eggs are in one basket, so to speak, because the money you have invested in your property can’t be spent elsewhere. You can’t use it for other investments, your own business, travel, study or entertainment. This is the opportunity cost of buying a house.
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