Property Investment

9 min read

Renting vs owning – Which is cheaper?

Get an honest comparison between renting and owning your home. You’ll also learn about the hybrid option – rent-vesting.


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Renting a property is often cheaper than owning your home ... at least at the start.

There are no extra costs (rates and insurance), no deposit to find, and no high mortgage interest rates.

But what is the better financial decision?

That decision to buy or rent depends on many things. You’ll think about your financial situation, lifestyle, and personal goals.

So in this article, you’ll get an honest comparison between renting and owning your home. You’ll also learn about the hybrid option – rent-vesting.

Just before we get into it. Here at Opes Partners, we recommend New Builds to property investors.

So, there is an incentive for me to say: "Buy! Don't rent". I'm not going to do that. Because then you’d say, ‘You’re biased.’

So, this will be an honest comparison based on the numbers.

Renting – What are the pros and cons?

Let’s start with the pros and cons of renting.

When I started investing in property, I rented an apartment for 10 years. I loved it. I never wanted to buy it from the landlord.

Why? I had the flexibility to move whenever I wanted to. I was splitting my time between Auckland and Christchurch, and I didn’t know where I would end up.

So, renting gave me the flexibility to up-stick and move if I needed to.

On top of this, someone else handled the repairs. If the shower was leaking, I didn’t have to worry about it. More importantly, I didn’t have to pay for it.

So, other than my rent, there were no maintenance costs, insurance costs or rates to pay. So I just had the same weekly rent. So it’s very predictable.

All I had to worry about was rent.

But, as we’ll see, this is the more expensive option over the long term. It’s also important to remember that when you rent, that goes to paying someone else’s mortgage.

Owning – What are the pros and cons?

What about owning a property? What are the pros and cons of that?

The main benefit is that you own an asset that can go up in value. This increases your wealth.

And as we’ll see below, owning is often cheaper over time.

But, there are lifestyle benefits too. Families often appreciate the stability of owning.

It means they can send their kids to the local school and not have to worry about finding another rental. Because if their landlord asks them to move out, they might struggle to find a rental in the same school zone.

You can also renovate your own home – whereas you often can’t do that with a rental.

Having said that, there are some cons.

Once you own a property, it is expensive to sell and buy another house. You need to pay for a real estate agent, staging, marketing, lawyers and a whole heap more.

You are also responsible for the rates, insurance, and property maintenance. Those costs tend to change. So it’s not wrapped up in one nice weekly fee.

And as we’re about to get into, owning your own home is often more expensive in the short term.

Renting vs owning – what costs more?

I recently worked with a couple, John and Alex. They are renting a 2-bed townhouse in Christchurch for $510 a week. It’s the first home they’ve lived in together.

But their relationship is getting serious. They want to buy a home together.

They've got a $116k deposit between them. It’s mainly their KiwiSavers and some government support. That’s enough for a 20% deposit.

They both like the 2-bed townhouse they live in. So they want to something similar.

A similar home in their neighbourhood costs about $580k.

So, if they put in their deposit and take out a mortgage, their weekly payment will be $712. That’s based on a 7% interest rate and paying off the mortgage over 30 years.

On top of all that, John and Alex will also have to pay:

  • Maintenance costs (e.g. $200 a year)
  • Insurance (e.g. $1800 a year)
  • Rates (e.g. $3000 a year)

All in, it costs John and Alex an extra $300 a week to own their own home.

Seeing the numbers, the couple looked at each other and asked: “Why the hell do people buy their own homes?”

It’s cheaper for them to keep renting, right now.

Renting isn’t always the cheapest option

Renting is often a bit cheaper in the short term. But, over time, owning your home starts to cost less.

How does that happen?

Rents tend to keep going up. The median rent goes up 4.7% a yearon average. Sometimes it’s more. Sometimes it’s less.

But as long as your interest rate stays the same, so does your mortgage payment.

So, let’s say John and Alex’s interest rate stays at 7% for the next 30 years. They will always pay the same $712 a week.

Their other costs like rates and insurance will still go up. But still, over time owning is cheaper.

And if you own your home, eventually you’ll be mortgage-free. That substantially decreases the cost to own.

So, yes, renting is cheaper initially. But owning is still the better financial decision over the long-term.

On top of that, if you own a house, it will likely go up in value. This increases your wealth.

Can I rent and invest in property?

Rent-vestors are people who choose to rent and own investment properties. This strategy is becoming more popular.

Here are 3 examples of where renting might make more sense.

#1 – Single professional wants flexibility for work

This was me.

For ten years, I loved living in my Christchurch apartment. It only cost me $500 a week in the end. And I still went out and bought investment properties.

But I never wanted to own that apartment. The maintenance costs would have been huge, and I knew I wouldn’t stay there long-term.

#2 – Family chooses to rent the bigger home

My friend Peter is a property manager, and he chose to rent for a similar reason. He's got 3 kids and lives in Auckland.

He knows the home he’d need for his family would be expensive ($1.5 million+).

The gross yield on that sort of property is low.

So it makes sense for him to rent his ideal family home. Then, he buys investment properties separately.

#3 – Emerging investor rents a room to keep costs down

Then you’ve got Sarah. She’s renting a room that only costs her $150 a week.

She doesn't need a whole house, and she wants to keep her costs low.

She's on a good wage as an up-and-coming lawyer. So, she allocates most of her money towards her investment properties.

Should I rent or own?

Rents will continue going up, and you’ve always got to pay them.

Mortgages tend to decline over time. Either inflation erodes the real value of the mortgage, or you pay off the debt over time.

Right now, renting is cheaper. And it will be for many years.

But if you're looking at making a financial decision, owning is cheaper over the long term.

Opes Partners
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Andrew Nicol

Managing Director, 20+ Years' Experience Investing In Property, Author & Host

Andrew Nicol, Managing Director at Opes Partners, is a seasoned financial adviser and property investment expert with 20+ years of experience. With 40 investment properties, he hosts the Property Academy Podcast, co-authored 'Wealth Plan' with Ed Mcknight, and has helped 1,894 Kiwis achieve financial security through property investment.

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