Owning a home is the ultimate dream of many people. Some even say it is the biggest investment of one’s life. After almost a year of renting, I now have a better view at renting versus living in my own house.
- Rent when: you are not ready to settle down; you have debts that have high interest rate; you want to speed up your financial state
- Live in your own home when: you tired of moving around; you can financially support the mortgage; you are aware of costs of owning a house.
I used to live in my own house. It is the Vietnamese way to live in your own house and not paying other people’s mortgage.
However, after a number of years, I came across a concept called rentvesting, which I considered intriguing to understand more. Rentvesting discusses that by renting, you end up saving more money than the cost of owning a home. And by redirecting the difference into purchasing investments, you can get ahead financially comparing to people who are still paying off their home loan.
There are 2 points that needs to be done for this strategy to work:
- Your rent is cheaper than your would be costs of owning.
- You redirect all the difference into investments.
Above is the comparison for my own situation when I tried to figure out whether I should move out of the house or not. The number checked out, netting me $306.89 per month, or $3682.72 per year back in my pocket if I chose to rent somewhere in the same area and rent out the house. Then I can redirect it to the offset account, or saving up for another investment deposit.
But why stop there? I decided that if I rent in the city, it is more suitable for me. Assuming that for each hour commuting I can put into work to just make $10/h, and I waste 3 hours each day commuting at that time.
At my age, settling down is not really a thing to consider. I am happy to move around, exploring different suburbs and enjoy the lifestyle that the city gives.
Benefits when you rent
- Landlords handle all repairs.
- Cost of living is fixed, therefore cashflow projections are more reliable.
- Enjoy lifestyle.
- Easy to move around.
Why buy a home and settle?
Someone once said: “A man needs a home when his wife says they need a home.” With that in mind, the suitable time for someone to live in their own house is when they want to settle down and ready to live in a particular location for the next 5 years or so.
Why 5 years? Statistics say that Australians tend to move house every 5 years on average. Maybe the kids are grown up and parents have to move to another location closer to schools. Or one person finds a job that are far away and therefore decides to uproot the family.
However, you need to be aware of the costs of holding a house before jumping into the water, which I will discuss in my next blog post.
Renting versus living in own’s home has been a great discussion over generations. However when we put emotions aside, and focus on what is quantifiable. There are a lot of benefits that can come out of renting, provided that we follow a set of strict rules.
Disclaimer: the information on this website is for general information only.
By Tuan Nguyen