Which is cheaper renting property or buying property?
“Hello and welcome back to daily buying tips, I’m Dean Berman from Berman Buys.
Today we’re going to discuss which is cheaper renting or buying?
This is a particularly interesting topic for first home buyers and downsizers.
Purely on numbers renting is obviously the cheaper option, and it definitely is in the short term.
As the upfront costs associated with buying are much higher with stamp duty and the deposit.
But there is one main way, over the medium to long-term buying becomes more affordable than renting.
The main way is:
turning half the property into an investment
I’l first explain the numbers then show how this can make it cheaper.
Comparing like for like.
Buying a $600k property at a 4% interest rate versus renting that same property at a 4% rental yield.
In both instances the cashflow will be the same, about $461 per week.
When buying you will need anywhere from $80k+ upfront for a normal buyer.
This figure will vary depending on each state such as NSW, VIC, QLD as stamp duty rates are different.
You will need a bit less if your a first home buyer as NSW and VIC have first home buyer grants, which can save upwards of $20k-$30k.
I’m not taking into consideration council rates, water, electricity, any maintenance on the property and strata rates if it’s a strata block.
Now this is where things gets interesting, like a Louis Theroux investigation.
Simply turning half the property into an investment means you could potentially receive about $250 per week in rental income.
This would cut your mortgage repayment by upwards of 50%.
Which would mean your weekly repayments effectively become $211 from $461.
This graph shows that by receiving that extra $250 per week, the property becomes cheaper and effectively pays off the initial $80k outlay after 6.1 years.
Meaning anything after that period makes the purchase more affordable than the renting option as your recovering more than you spend.
Would it be worth sharing with someone else, if it gets you onto the property ladder?”