Deciding whether to buy, rent or invest is one of life’s biggest financial decisions. To make things even harder, 2020 has been plagued with uncertainty however don’t let this be the cause of a missed opportunity or an ill made decision. As a way to provide some guidance on what option is best for you, the team at Wealth Depot have highlighted some important talking points and things to be wary of when choosing to buy, rent or invest.
As always, any financial decisions must align to your goals and objectives. With the end in mind, the right decision becomes clearer.
Choosing to buy
Opting to buy a house has some considerable benefits which has made it so desirable for so many people. The price of houses typically rises over time making it a profitable long term and stable investment. The steady growth of property and lower price volatility seem to make property more predictable then investing which can present additional risk. As such if your tolerance for risk is low, buying a home may offer a balance between risk and growth as an investment strategy. Additionally, owning a property provides some intangible benefits such as security and the certainty you may not get from renting or investing. For families with children, self-employed individuals and businesses that operate from home, this security can be crucial and would suggest that buying a house may offer the right option for your circumstances and goals.
Choosing to rent
Renting is an option that can be used as a steppingstone for long term financial success. It allows savings not to be locked in with ongoing repayments. This flexibility means individuals have the freedom to diversify their assets in a more customisation manner to suit their risk tolerance and achieve their goals. Renting however does lack an element of security that you get with owning your own home which may be more important depending on your stage of life. When comparing renting and buying without all the noise, no ownership of a property at the end of the day could be considered a weakness of renting but to say renting is dead money may not be totally true.
An alternative or complementing strategy to buying a house is building an investment portfolio. A well considered Investment portfolio may be a viable option that could provide cashflow and long term wealth creation. As mentioned, renting allows you to more easily afford an investment portfolio, but this doesn’t mean you cannot have one if you purchase a house. You could offset the cost of an investment portfolio with the equity of your home or simply consider an investment portfolio once your house is paid off as a way of being pro-active with your savings. It is important to note that an investment portfolio doesn’t guarantee growth and a fixed income so it is important that you are financially prepared for such an investment.