Around one third of the Australian population rents their home, and while a great deal of attention is focused on the affordability problems faced by home owners, tenants face their fair share of financial challenges too.
I'M a big fan of home ownership but there are times when it makes sense to rent rather than buy. This is especially the case for tertiary students living away from home or young couples setting up together for the first time. Whatever the reason for renting, there are plenty of hidden costs to be aware of.
There was a time when renting used to be more affordable than owning your home but that’s not always the case these days. Industry figures show average rents are highest in Darwin ($520 per week), Canberra ($490) and Sydney ($430). Adelaide ($325) and Hobart ($335) are quite a bit cheaper.
It’s vital to commit to a property with a rent that’s affordable for your budget. Bear in mind you’ll need to stump up a rental bond, which can be anywhere from four to six weeks rent depending on the property. You’re also likely to be asked to provide two weeks worth of rent in advance. So if the weekly rent is $400, you may need to scrape together as much as $2,400 before you can move in.
It’s also essential to be prepared for rent hikes. Rent rises vary between areas, but as a guide, figures from the Department of Housing in Victoria show the average weekly rent in Melbourne rose by around 5.5% in the December 2010 quarter. In regional areas the increase was almost 8%.
This underlines the importance of opting for a property you can afford into the future.
Be sure to check the lease document before you commit to a rental property. It may specify when the rent will be reviewed and the basis for rent rises. If it doesn’t, ask the property manager.
In today’s environment of tight vacancy rates, it can be worth asking for an extended lease. The standard residential lease term is six months but locking into a longer lease can be cost effective as rents are usually reviewed when your lease expires.
If you take up this option, you need to be sure you’re happy with the property and location. If you bail out before the lease expires you can be asked to pay the rent until another tenant is found.
As a tenant you’ll avoid many of the costs of home ownership like council rates or repairs and maintenance. But it’s still a good idea to take out insurance over the contents of your home.
This is an area where tenants are often caught short, and for the sake of a few hundred dollars, contents cover will protect your valuable against things like theft or fire damage.
Finally, as a tenant it’s wise to establish a personal saving regime. It’s not always easy when your budget is thinly stretched by high rent payments but even small amounts invested on a regular basis can accumulate to something substantial over time – including a home deposit, if you decide, as many renters do, to one day buy your own place to live.
Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.
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