One of the big dilemmas facing young people is whether to follow the Australian dream and buy a home or rent.

While this article will look at it from a financial perspective, there are non-financial pros and cons as well. For example, if you buy there are no more inspections, and you can put up as many photos as you want. You also don’t live in fear that the lease won’t be extended, and you must move out.

On the flipside, when you rent you have the flexibility of moving. This can allow you to take up opportunities to get better, higher paying jobs that you may not be able to do if you owned.

To look at the financial difference, let’s use a case study of a 30-year-old couple looking to buy their first home.

They are looking at buying a home worth $550,000 or renting a similar one for about $460 per week. They already have a deposit of around $100,000.

Buying would leave them with a mortgage of $480,000 after buying costs. At current home loan rates of 3.5%, they would be paying $26,000 per year in mortgage repayments. In addition, they would have to pay around $3,000 in rates and another $3,000 in ongoing maintenance. This brings the total cost of home ownership to $32,000 per year.

If they rented, they would be paying about $24,000 per year in rent. As a bonus, they would still have their $100,000 deposit they could invest. The catch here, is the rent is likely to increase over time.

Fast forward 30 years assuming they both stayed in the same house. If they purchased, they would be mortgage free. Their house would be worth around $1.7 million assuming growth of 4% per annum. The ongoing cost of home ownership would only be their rates and maintenance.

Alternatively, they could rent and invest the difference between rent and home ownership. If they invested in a high growth investment averaging 9% per annum, they would have accumulated a little over $1 million. This assumes they re-invest the dividends and pay tax of 32% on the investment earnings.

So, while it seems clear that home buying beats renting, it comes down to how you invest.

If the renter put the difference into super and chose a high growth investment option they would have $1.7 million. Note that this is in addition to their regular super savings.

The difference between what they would have accumulated outside of super and within super (i.e. the $700,000) is the amount of tax they paid. However, the bigger bonus comes when they turn 60. They could withdraw this $1.7 million, tax-free, and buy a home. Alternatively, they could take a tax-free pension for the rest of their lives that would more than cover the rent.

So, should you buy a home or rent? It comes down to whether you are disciplined enough to invest the difference in a tax effective way. If you aren’t, then home ownership is probably your best bet.

If you are considering home ownership and want to discuss whether this is the best approach for you, book a chat via the button below. Alternatively contact us on 0417 034 252 or at

About the Author
Phil Harvey is an independent financial adviser. In 2017 Phil set up his company Construct Wealth to help clients best manage their finances so they focus on what is important to them. He is a founding member of the Profession of Independent Financial Advisers and a tax financial adviser, registered with the Tax Practitioners Board.

General Advice Warning
This advice contains general information. It may not be suitable to you because it does not consider your personal circumstances. Phil Harvey and Construct Wealth are authorised representatives of Independent Financial Advisers Australia (AFSL 464629)