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7 Benefits of Rent-to-Own

Written by

James Bowe

Rent-to-own is a pathway to homeownership that is growing in popularity in Australia as it allows you to live in your home while saving for it. Overseas in countries such as the United States, Canada, and the United Kingdom- rent-to-own has a long history of helping people into their homes.

But why is it becoming such an attractive option? Well there are some great benefits that couples, families and individuals who want to get onto the property ladder can access.

1. Save for your deposit while living in your own home

In Australia it takes a Sydney couple, family, or individual over 8 years to save for a home deposit, during this time they are living in rental accommodation.

Rent-to-own allows you to live in your home while you save for it. After 5 years in a rent to own scheme, the average deposit saved is $195,000.

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2. Have control of your home

No more landlords selling the property you live in as you have the exclusive right to purchase your property. You are also able to change the carpet, update the kitchen taps, even hang a picture on a wall!

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3. Know you can afford your home at the end

With Rent-to-own you lock in the price of your home the day you move in. The schemes account for price growth in the market but they are normally less than half the average Sydney price growth of the last 50 years

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4. Realise capital gains

The average wealth of homeowners is 20x greater vs. renters at 65. If you purchased a $1M home with a rent to own scheme, 7 years ago and it grew at the average growth rate of 8.5%p.a., you would have captured $354,000 more in capital gains, than had you rented and saved the same amount during the same period of time. Or in other words a lifetime’s supply of avocado toast.

Rent-to-own compared to saving for your own home while renting
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Footnote: 1. ABS median established house price growth rate between Sept 2014 to Sept 2022 applied to a $1m house in Sept 2014. 2. Deposit under OwnHome is in the form of purchase offsets which are offset against the pre-agreed purchase price 3. 4. Rent to Own scheme OwnHome upfront cost is taken out of equity. 5. Both scenarios assume the customer has separately saved for and paid stamp duty.

5. Pay one simple fortnightly payment

Saving for a house deposit while covering rent and other expenses is hard. With a rent to own scheme you’ll make one payment that covers all the costs of homeownership and is the equivalent of a typical principal & interest mortgage in cash outlay each fortnight.

As a homeowner, people often forget to budget for all of the other costs such as Council rates; Home insurance; Maintenance; Strata fees. All of these costs are included in your payment.

Rent-to-own payments vs mortgage payments
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Footnotes. Mortgage assumptions: assumes 3.7% Westpac comparison variable rate, 25 year mortgage paid monthly. 2. Direct property costs are assumed to be 1% on average per annum for properties. Rent to Own assumptions: OwnHome costs are first weekly payment annualised. 2. Rental costs for a property is 3.5% p .a of its value.

6. Don’t pour all of your life savings into one property

Rent-to-own is a great option if you’re seeking to maintain flexibility of your savings/investments to:

  • Invest in your or other’s businesses, other projects, and financial ventures
  • Avoid selling investments and paying additional taxes to fund the deposit for your home
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7. Waiting on Permanent Residency? Don’t pay foreign owner tax

You moved to Australia, fell in love, and now want to stay. You have a certain path to Australian Permanent Residency and want to purchase a home, but what you might not realise is just how burdensome the additional taxes are and how difficult it is to obtain bank finance on your journey to permanent residency in Australia.

On a $1M home, a non-permanent resident is actually subject to an additional $60,000 in stamp duty and land tax. That’s a huge amount of money that does not go towards your home.

With Rent-to-own you can delay taking legal title to your home until after you’ve become a permanent resident, but lock in your home price and make your house a home, with the freedom to renovate and do what you want with your home.

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About the Author

James Bowe, Co-Founder at OwnHome

James

Bowe

James Bowe

James is the Co-Founder at OwnHome whose mission is to turn renters into homeowners. OwnHome allows customers without deposits, to save towards their home while they live in it.