When you are saving to buy a home, every bit counts. One of the biggest expenses, while you save to own your own home, is where you live.
In order to get to your saving budget goal and to have a deposit on your new home, you will need to spend as little as possible on rent.
Renting certainly offers you options you might not be able to afford to own. A great location, bigger size or state-of-the-art appliances might be out of your budget to own but within your budget for short-term rent.
While it might be nice to have a beautiful home or sunset views temporarily, it can mean you never save enough to buy a home of your own.
It might not seem like a big difference at first, but when you take the time to do the maths, the difference can be significant. For example, if you were renting at $500 a week ($26,000 a year) and you downsized to a rental that costs $400 a week ($20,800 a year) you save $4,200 a year, which goes directly into your home savings account.
Even if you don’t put aside any additional savings, in rent savings alone you will have close to $15,000 in just three years.
And $400 a week in rent isn’t a hovel. You can still rent comfortably and not be too far work or friends.
When it comes to deciding your rental budget, it pays to be realistic about how long you might be renting for. Allow some leeway for adequate savings as well as the time it will take to find your dream home in your budget, and settlement. While you might optimistically be planning to rent for a year, it could end up being two, three, or even four years.
The other drawback to living in a luxury rental situation is that finding your dream home can be more hard work.
If your expectations are high and you are used to living a certain way you might have trouble finding what you want in your budget.
It’s tempting to want luxury and nice things surrounding you, you are working hard after all, you want something to show for it and a place to unwind or entertain friends. Remind yourself of your bigger goal as often as possible. Make a list of all the things you will enjoy about owning your own home to keep you motivated and on track.
While having a temporary pad is nice, it’s only going to be temporary.
Weigh up the long-term benefits. Owning your own home, an investment that is permanent and yours, or living in a rental place that has all the bells and whistles. If you had to make a choice, which do you want? Most people optimistically think they can have both, the reality is, you are more likely to own your own home when you fully commit to that choice and adapt your lifestyle to shape your future.
If you have kids or pets you will need to make careful choices about where and how you rent, but there are still more affordable options when you go looking for them. The more flexibility you have, the more options become available, like co-renting, taking a room in a share house or joining a house-sitting website.
Remember, you’ll only be living in your rental for a short period, and every week is a step closer to owning your own home!
Peta Stewart – Certified Practicing Conveyancer