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To rent or buy?

That is the question facing many struggling with the housing affordability crisis that continues to present itself in the Australian market, specifically in Sydney.

It was only mid 2017 when the median house price reached the 1-million-dollar mark at the peak of the growth cycle. Shortly after the peak of the property cycle, prices then experienced a correction especially in the Sydney and Melbourne markets.

Fast forward to today, interest rates are lower than ever and property prices continue to rise, showing a clear recovery in property prices. As of November 2019 the median house value in Sydney reached $840,072 after experiencing a bounce back in price growth of 6.2% in the last quarter alone [1].

It is becoming increasingly difficult for first home buyers to break into the market, and many are considering whether renting a home may work out to be more affordable.

The calculations

The average rent for a house today in Sydney is $540 per week/$2160 per month [2).

For a Sydney home purchase of $840,000, which includes:

  • Initial deposit (10%): $84,000

  • Stamp duty: $33,519

  • Legal fees: $1800

  • Total upfront cost = $119,319 [3)

If an individual was able to save the initial 10% deposit, plus upfront costs for a house worth $840,000, the loan required would be $756,000 (90% LVR).

Using the Commonwealth Bank Mortgage Calculator [4) for the above scenario the monthly mortgage repayments would be $3,299 per month. Keeping in mind, this scenario is in a time when Australia has some of the lowest interest rates in history (January, 2020).

Does this mean it’s a better financial decision to buy or rent a property in Sydney today?

Based on the above sums, it will cost $3,299 per month in mortgage repayments alone for an $840,000 purchase, not including council rates, insurance, and ongoing maintenance costs.

If you decided to rent and keep saving, they would be paying $2,160 per month in rental payments based on the current median Sydney rental price of $540 per week.

Total mortgage repayments for the year based on a $756,000 loan = $39,588

Rent per year based on the current weekly average = $28,080

This is a difference of $11,508 per year in savings alone for the renter, and could be used for a family holiday or be utilised for further investment.

So, is rent money dead money?

Not necessarily. In the above scenario, the individual needed a total of $119,032 for the home purchase.

Instead looking at the following scenario;

If the individual decides to rent where they want to live and invests in a booming property market.

If they purchased an investment property in the QLD market for $500,000 the would need the following;

  • Initial deposit (10%): $50,000

  • Stamp duty: $17,461

  • Legal fees: $1800

  • Total upfront costs: $69,261

This would leave the individual with an additional $50,058 in savings, as they didn’t commit to the $840,000 Sydney purchase.

Also due to the weekly rent coming in for the investment property, plus any tax benefits the property may have, the property could be cash flow neutral, or even positive from the beginning whilst the individual continues to save towards their next investment.

Key takeaways

Whether you decide to buy a home or rent and invest, both approaches have their pros and cons and you should make sure you can afford both options.

There are many rent vs buy calculators online to assist you with working out the costs of both approaches.

Even though you it may feel like you’re throwing money away while renting, it doesn’t mean you should take on a large mortgage without crunching the numbers and really knowing what you will be out of pocket each month.

Before deciding on either approach, it is highly recommended that you seek the advice of an appropriately qualified professional such as a mortgage broker, accountant or financial planner to determine which strategy is appropriate for your individual circumstances.

Jarryd Gauci – Property Investment Consultant

P: (02) 9939 3249


[3] Stamp Duty Calculator -


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