Renting Vs Buying

One of the things people tend to debate about quite a bit is the epic Renting Vs Buying conundrum.

The arguments are as thus:

Renting

The idea behind renting for life comes down to the argument that having a mortgage causes you to spend an outlandish amount of money, up to $700,000 on the average house, on interest payments. The alternative involves, rather, saving those extra amounts you would normally pay on interest into a high return savings account, shares or superannuation earning you up to 9% over the same 25 year period. This provides flexibility on your housing arrangements if you wish to travel or work overseas.

Mortgage

The idea behind a owner occupier mortgage is the obvious - investing in property which appreciates in value over time as you live in it and pay back your loan. The more you pay and the more frequently you pay, the less interest you will need to pay to the bank. You can increase the value of your home with additions and renovations, as well as avoid issues associated with renting. It's generally more stable and secure.

Both arguments are sound. But I personally see a flaw in the Renting argument.

That flaw is living in Australian culture. Why? Because our culture is all about lifestyle. We love to consume. We love to travel. We love new toys, new types of beer, going to Bunnings, buying jet skis and boats we never use.

The renting argument relies on the fact that you will save at least 1/4-1/3 of your income on a monthly basis and invest it somehow. Not only that, but you will do it for 25 years without fail.

For some people, this is easy. They don't feel like they need a lavish lifestyle and are good with their money. But for most, the majority, don't. They like to go out on weekends, to buy that new Wii game, to have 6 ebay auctions going at once. It would be extremely difficult for them to find ways to cut $1000 out of their income.

A mortgage forces you to save money. You have no choice but to pay the bank. Anything left over is yours to spend how you please, just without the guilt of savings. So that way, the next time you go on holiday, you *really* know you could afford it.