The waiting game: Why it pays to rent cheap while you save up to buy

  • 30 Oct 2017
  • Successful Stories

Within the constraints of market affordability, you should aim to spend as little as possible on rent.

Don't get me wrong, I'm not telling you to rent a hovel for peanuts - although doing so would probably work out well financially - but to find a relatively cheap property that, while comfortable, won't cost you a fortune.

While you might see this temporary period of renting as your opportunity to live in a property or location you could probably never afford if you were buying, if you splurge on a rental, at the end of the day you may not be able to afford to buy any property at all.

Keep it lean: As a general rule, you should aim to spend as little as possible on rent while you're saving up to buy a house.

Keep it lean: As a general rule, you should aim to spend as little as possible on rent while you're saving up to buy a house. Photo: iStock

Why? Let's take a look at some figures that might illustrate the point a little better.

If you take on a lease for a house at $800 a week, you’ll be paying nearly $42,000 a year in rent. Compare that with paying $500 a week – or $26,000 a year.

Remember this isn't your forever home, it's only temporary.

That $16,000 difference is nothing to sneeze at. It will be a big contribution to your next home, saving you $93 in interest a month at a 5 per cent rate.

At $500 a week, you'll be spending a significant amount on rent, and every extra dollar you spend unnecessarily will be the equivalent of throwing money away for the sake of a little extra luxury. It will be eating into any cash you have and diminishing the capital gain you likely made from selling your house.

If your goal is to buy again it just makes sense to rent something more affordable so you can instead put your dollars towards your next property to lower your borrowings as much as possible.

Remember that while your plan might be to rent temporarily – for six months or a year – it may end up being years before you find the right property to buy so it could end up costing you a lot more than you originally budget for.

There are many far more pressing matters than terrorism that have combined to make Sydney less liveable than before.
The drive to rent somewhere in an idyllic location may be strong, but it could put your plans to buy in jeopardy. Photo: Michel Bunn

And if you rent a really flash pad, you'll probably find that “right” property will become even more elusive as your expectations will be higher – that is, you will have grown accustomed to a certain lifestyle and will be reluctant to give it up to live in something more modest.

You could then choose to be a rentvestor, renting where you want to live and buying an investment property, but if you want to own your own home my advice would be to find something comfortable to rent, and no more than that. That's all you really need. That might involve downsizing and living in an apartment or moving to a more affordable location.

Remember this isn't your forever home, it’s only temporary, and renting something more modest will also give you the impetus to get out there and find a property to buy that you really want to live in.

If you do downsize when you rent, make sure you factor in any potential costs for storing furniture you can't fit in your rented home, which can be upwards of $100 a month, or if you rent a house you could store it underneath if possible.

If you have a pet or children, downsizing might be a little more tricky; you'll probably need a bigger home for the latter and a fenced backyard for the former, especially if you have a dog.

Apart from renting something small and cheap, if you want to save money before buying again, you could also consider living in a share house or house-sitting.

Vanessa de Groot is a property journalist and a committed real estate investor. 

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