Many of the renting myths we're familiar with today were established decades ago and passed down through the generations. They were formed at a time when property prices compared to wages provided an easier pathway to home ownership.
In recent years, the affordability gap between renting and buying your own home has significantly widened, which means that more people are likely to be renting for longer.
The Australian Bureau of Statistics' 2022 Census data found that around 31% of Australians are renters.
A survey by the Australian Housing and Urban Research Institute recorded three in five Australian renters report that they don't think they'll ever own a home.
Home ownership comes with its own challenges and 'not now' doesn't mean 'not ever'—timing can be everything. In fact, there's an emerging belief that renting may actually help you to achieve your financial goals.
In this article, we unpack some of the most common misconceptions related to renting and money.
The bottom line is: don't just blindly follow the masses doing it how it's always been done. These days, home ownership isn't the only way to build wealth. Get smart with your money and create your own pathway to living the life you desire.
For many people, renting is a stepping stone to the great Aussie aspiration of home ownership. However, there are others who consciously choose to rent for various reasons, even if they have the financial means to purchase a property.
Some people even embrace renting, like Mark LaMonica, Personal Finance Director at Morninstar, who has decided to rent for life!
In addition to lower upfront and ongoing housing costs, the reasons for and benefits of renting can include:
Renting can be a better option in various stages of life, particularly when enjoying your lifestyle is the priority or when you're working towards a bigger picture target.
We've heard the saying that renting is 'dead money', or considered as 'throwing money away' or 'paying off someone else's mortgage'.
The reality is that not every property investor makes a profit from renting out a property or actually receives a net financial benefit from negative gearing. Additionally, not all properties have increased in value at the time of sale or are sold at a profit. These are the some of the risks that investors take in holding property and the impact of unpredictable property market trends.
Everyone's personal situation, financial status and future ambitions are vastly different. So, there should be no cookie-cutter approach to answer the rent versus buy dilemma.
However, many of the entrenched home ownership ideals don't reflect the current environment of high cost of living and property versus wages and affordability. Furthermore, sinking a sizeable chunk of money can limit your cash flow and setting down roots can tie us to one place—no one ever told us to factor opportunity cost into major life decisions!
As new thinking challenges the concept that home ownership is the only way to build wealth, people are becoming more open to taking control of their own individual situations in a way that works best for them.
Yes, it's true that landlords can unexpectedly increase your rent with a specified notice period. Thankfully, various state and territory legislations across Australia have limited the frequency of rent increases—along with other changes to make renting fairer for tenants as part of rental reforms introduced in recent years.
Homeowners with a mortgage are equally at risk of rate rises. This is a possibility every month when the Reserve Bank of Australia announces their monetary policy on the cash rate. Every time the cash rate is increased, most banks follow suit by raising their lending interest rates to match. This could increase mortgage repayments by hundreds or thousands of dollars every year.
Regardless of whether you're a renter or homeowner, unfortunately, no one is immune to economic market forces and property industry conditions.
In fact, as the costs of renting are typically lower than home ownership (mortgage repayments plus other related costs), renters may be less stretched financially and more able to absorb cost of living pressures.
Another aspect that provides financial peace of mind for renters is not having to budget for major maintenance and repair costs. While tenants are required to keep a property clean and tidy, landlords are responsible for the cost of any major repairs or services. For example, if there's a plumbing or electrical issue, the garage door stops working, or there's a roof leak, unless you've done something to cause the problem the landlord will be responsible for fixing these as part of normal wear and tear.
Tenants also escape responsibility for other ongoing home ownership costs, like building or strata insurance, strata fees, shire or water rates!
When a landlord or property manager assesses rental applications from prospective tenants, there are many factors that come into play when considering the ideal tenant.
Apart from income, the considerations could include:
The truth is, every landlord or property manager may have varying preferences or weight certain criteria differently, along with their personal experiences and biases. So, there's no way of definitively knowing which considerations they'll prioritise.
An ideal tenant is someone who can tick all or the most boxes, not just show that they earn the most as income isn't an indicator of their cleanliness, reliability and trustworthiness as a tenant.
That's why it's important to always put your best foot forward by fully completing the application form, providing all the necessary documentation, and making every impression (phone/email/face-to-face) count.
Top tip: Submitting a tailored Renter Resume along with your rental application could help you to stand out from other applicants.
As tenant s aren't the owner of the home, they won't have free reign over things like knocking down walls, changing flooring or installing an air conditioner.
However, governments across Australia have been implementing new rental laws in recent years to:
In general, it's safer to make non-permanent changes which can be easily removed at the end of your tenancy. However, some rental reforms have provided enhanced scope for renters to further personalise their homes, like putting up picture hooks and shelves. Before you start, make sure you understand what's possible in your respective state or territory, follow any conditions specified in the lease agreement, and seek permission as needed.
It should go without saying that maintaining a polite and respectful relationship with your landlord or property manager will earn you additional brownie points!
When it comes to negotiating a rental adjustment, it's often far easier for the landlord or property manager to renew a lease rather than go through the rigorous process of advertising and signing up a new tenant. Bearing that in mind, highlight what a good tenant you've been and hopefully that will put you in good stead during rent negotiations.
Top tip: The award-winning rental payment platform, RentPay, is available for tenants to use as their preferred payment provider and doesn't require approval from the property manager. The user-friendly app lets you set your preferred payment method and schedule, plus access to a raft of other features and benefits.
You might also like:
> Creating a financial plan: how to set goals and achieve financial wellness while renting
> When was the last time you had an open conversation about money?
> Go-to personal finance books
