Is renting really dead money?

"Rent money is dead money." Most renters have heard that one, often from someone who bought their home a long time ago. There is some truth in it, but it is not the full story.

What you get when you rent

Rent pays for somewhere to live. In some cases, it lets you live in a better home or a more desirable suburb than you could afford to buy in.

Rent and property prices do not always move together. Rent is influenced by the number of homes available and what tenants in that area can afford to pay. Sale prices also depend on what buyers can borrow and how much deposit they have. That is why an expensive home can sometimes rent for much less than the mortgage repayments would cost.

Renting also gives you flexibility. Buying and selling comes with costs such as stamp duty, settlement fees, inspections and selling fees. If you expect to move again in a few years, those costs can make renting the better option for a while.

So renting is not automatically a bad financial decision. It can be the right choice depending on where you want to live, how long you expect to stay and what you can comfortably afford.

Where the dead money idea comes from

The important difference is that rent usually keeps going, while a mortgage has an end date.

Even if a home did not grow in value over 30 years, the owner would still finish with a property once the loan was repaid. Their housing costs would then generally be limited to things such as council rates, water charges, insurance and maintenance.

A renter would still need to pay rent. That does not make renting wrong, but it does mean the long-term outcome is different.

So which option may work out better?

A lot comes down to how long you stay. Buying has larger upfront costs, and it can take years for loan repayments and any growth in the property to make up for them. Renting may come out ahead over a shorter period, while buying may become stronger over a longer period.

The useful comparison is based on your own numbers: the rent you pay, the price of the home you are considering, your deposit and all the ongoing costs that come with owning.

If you decide to buy

A 30-year loan term does not always mean you need to take 30 years to repay it. Depending on the loan and your circumstances, an offset account, extra repayments or a different loan structure may help reduce the time and interest involved.

Renting and buying can both make sense at different times. The key is understanding what each option may look like for you now and over the years ahead. This is general information only and does not take your personal circumstances into account. Any borrowing is subject to a lender's assessment.