How To Tell If It’s Cheaper To Buy Than Rent Nearby

You can tell it’s cheaper to own than rent in your area when a stress‑tested mortgage plus ownership costs for a similar property are close to or below your current rent, while keeping total repayments under about 30–35% of your after‑tax income. The key is to compare like‑for‑like homes, use realistic interest rate buffers and include all the hidden ownership costs.

Comparing local rent and ownership costs starts with like-for-like properties in your area.

Step 1: Define the exact decision you’re making this week

Before opening a rent vs buy calculator, be clear what you’re actually choosing between.

Common real decisions

1. Keep renting here vs buying nearby (similar property, nearby suburb).
2. Keep renting here vs rentvesting (keep renting where you love, buy where you can afford).
3. Renew lease vs buy now vs wait 12–24 months (especially for first‑home buyers).
4. Upgrade and keep old home as investment vs sell and buy next home (owners and investors).

Each decision needs slightly different numbers, but the process is the same: compare your rent with your realistic ownership costs, not generic averages.

If you’re a first‑home buyer using schemes like FHBG or FHSS, your local concessions can tilt the maths — see the Alexandria‑focused guide on using FHBG, FHSS and NSW concessions safely at [/insights/first-home-buyers-alexandria-using-fhbg-fhss-nsw-concessions-safely].

Step 2: Calculate your local cost to own

2.1 Start with a realistic purchase price

Look at recent sales of similar properties in your immediate area. For a quick decision this week, use:

• Lower end of recent sale prices for your target property type; and
• A modest discount (2–3%) if the market is soft, or no discount if competition is strong.

Assume a 20% deposit if you want to avoid LMI, or lower if you’re comfortable with LMI and qualify for a scheme.

2.2 Work the mortgage number (with buffer)

Use a P&I repayment at today’s rates plus a 3% buffer (APRA’s typical serviceability buffer). Example:

• Property price: $800,000
• Deposit: 20% ($160,000)
• Loan: $640,000
• Actual rate example: 6.2% p.a. (illustrative only)
• Buffer test rate: 9.2% p.a.
• Term: 30 years

At 9.2%, repayments are roughly $5,230 per month.

If your household after‑tax income is $14,000 per month, this is about 37% of net income — already above the 30–35% range many brokers use for comfort, especially with Roy Morgan estimating over a quarter of mortgage holders are already at risk of stress.

So for this household, $800,000 may be too tight unless:

• One income is about to rise; or
• You’re very secure and happy to live lean; or
• You buy a little cheaper.

2.3 Add the non‑negotiable ownership costs

On top of the loan, you need to allow for:

• Council rates: say $2,000–$3,000 p.a.
• Strata (for units/townhouses): $3,000–$8,000+ p.a. depending on amenities.
• Building insurance (for houses): maybe $1,500–$2,500 p.a.
• Maintenance: a rule of thumb is 1% of property value p.a. averaged over time.

Table: illustrating annual vs monthly ownership costs.

So owning this $800k place costs about $6,400 per month when properly stress‑tested.

Step 3: Compare to your real rent today

Now line this up against your rent for a comparable home.

Say you’re currently paying $1,000 per week for a similar property:

• Weekly rent: $1,000
• Monthly equivalent: ~$4,330

Compared to the $6,400 stress‑tested ownership cost, renting is clearly cheaper on cashflow.

But that’s not the full picture. You’re also:

• Missing out on principal you’d otherwise be repaying; and
• Being exposed to rent rises — and rents have been rising strongly with low vacancy rates and higher construction costs.

For a more detailed 10‑year comparison, see the Eastern Suburbs worked examples at [/insights/local-rents-vs-buying-costs-eastern-suburbs-owning-vs-renting].