Grow Magazine

To nest or invest?

March 2015

Owning your own home may be the great Australian dream, but looked at as an investment the numbers don’t always stack up.

Debate continues to rage about whether it’s better to buy a home or rent and invest in some other asset.

There's no doubt buying a home can be an emotional investment. It sets the scene for raising children and family get-togethers. We lavish time and money on home renovations and dream about putting in a pool or a vegie patch.

But does buying a home stack up as a good investment? On that score the jury is still out.

Traditionalists claim that having a mortgage encourages us to save money we might otherwise fritter away and effectively lock in the amount we pay towards accommodation, subject to changes to interest rates. But a growing school of thought says we could be better off financially to rent and invest the difference in shares.

Cost comparison

On the face of it, at a given point in time, renting is generally cheaper than the mortgage payments on a comparable property bought in the same market.

ABS figures from 2011 show households renting from a private landlord paid an average of $285 a week, compared to $415 a week for the average mortgage. The actual figures will vary depending on the property and its location, but the discount for renting still holds.

Even so, popular wisdom says that rent is dead money whereas buying results in eventual ownership of a real asset. But at what cost?

The market price of a home is just the beginning. On top of that you need to factor in the interest charged on your loan, stamp duty, legal fees, lenders’ mortgage insurance, property management fees, council fees, water fees, repairs and maintenance and the temptation to overcapitalise. By comparison, the financial cost of renting generally begins and ends with the rent. If you then choose to buy and sell shares you pay a fee for brokerage, but at a much lower percentage of the investment’s value than housing costs.

In the long run

In fact, the Reserve Bank of Australia (RBA) has concluded that it could be cheaper in the long run to rent. According to its research, buying a home is only cheaper than renting if prices keep growing at or above the average rate of the last six decades - 2.4 per cent a year.

But if instead prices grow at the average rate of the last decade – 1.7 per cent – buying is only cheaper than renting if you stay put for more than 30 years. Yet the average length of home ownership in Australia is about 10 years for houses and eight for apartments.

The RBA says many observers suggest future price growth is likely to be less than the long-term historic average.

If that’s the case then at current prices, rents and interest rates you may be financially better off renting. With one proviso. The money you save needs to be earmarked for investment before it’s sucked into the black hole of everyday spending, and that takes discipline.

One way to achieve this is to set up a weekly or monthly direct debit into a high interest savings account. Then every few months, when the balance builds up, you can buy a parcel of shares or top up an investment in a managed fund.

Weighing the alternatives

If you have your heart set on property investment,  an alternative would be to have a bet each way and invest in a real estate investment trust (REIT) while you rent.

The beauty of investing via a managed fund is that you are putting your money in a diversified portfolio of property types and locations, rather than literally betting the house on one property in a single location.

The decision to nest or invest is a complex one. For many of us there will always be an element of emotion involved, but with housing affordability a hot button issue it is worth weighing up the alternatives.



  • Emotional security
  • A form of enforced saving
  • Hopefully a fully paid for home in retirement
  • If buying with a loan, the investment is geared and so has greater potential for both gain and loss


  • High transaction and other costs of ownership
  • Wealth tied up in a single asset
  • If buying with a loan, the investment is geared and so has greater potential for both gain and loss

Rent and invest


  • Greater freedom and flexibility
  • Potentially a bigger nest egg on retirement
  • Opportunity for a more diversified investment portfolio


  • May need to move more often
  • Discipline required to achieve results.

March 2015