To Own or Rent? What Makes More Sense?

October 16, 2014
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If you are considering whether you would be further ahead by owning or renting, you are not alone. The decision is a matter of both financial and lifestyle costs and conveniences. The ongoing dilemma does not just face young people starting out – but anyone who is looking to move. Should you buy a home or find a place to rent?

Regardless of your situation, when it comes time to decide whether you should rent or buy, there are a number of practical and financial factors that have to be considered. Start with a careful analysis similar to what you would do for any other investment. A good place to begin is by comparing renting and buying costs using a mortgage calculator.

Why You Should Rent

Looking at just the numbers, renting typically outpaces buying, as a short-term option because of the buying costs – including transfer taxes, legal fees and closing costs. If you are renting, the money that you would have spent on a down payment can be invested elsewhere and there are no long-term commitments.

If you are in a situation that requires you to move frequently or if you do not plan to stay in your home for long (at least 3 years as a general rule of thumb), renting can offer flexibility since you can pick up and go with just a month or two of notice.

As a renter, your landlord will cover the costs or property taxes, maintenance, insurance, and sometimes utilities and other perks. So, there is no need to worry about the costs of replacing roofs and fixing leaky faucets.

Why You Should Buy a Home

As a renter, you can expect to pay rent that increases at roughly the rate of inflation. This means your cost for accommodation never decreases so you cannot recover any portion of your monthly housing costs. Once paid, your rent is in your landlord’s hands.

In contrast, when you buy a home, the equity, or the value of the home minus the debt owed, increases with each monthly mortgage payment made. This means that over time your equity grows until you own your home.

Over the long run, more and more of your monthly payments become recoverable since the payments are actually paying down the principal. A long-term decision to own provides you with the opportunity to recover improvement and maintenance costs. For example, homeowners who maintain their home through a remodel or by ensuring it is in good repair will often see an increase in sales price when it comes time to sell.

Another benefit of home ownership versus renting is that you have the flexibility to do what you like with your home – paint the walls whatever colour you like, build your own DIY fire pit in the backyard, or turn a 3 bedroom home into a 2 bedroom with a spacious master bedroom complete with walk-in closet and spa-like bathroom.  It is all up to you.

7 Questions to ask yourself

So, should you rent or should you buy? Here are 7 questions you should ask yourself to help you decide:

  1. How long do you plan to live in the home? If you are planning to make a long-term commitment, buying may be a better option.
  2. Do you have the savings for the down payment? Have you calculated in the extra closing costs for lawyers, taxes, inspections, etc.?
  3. Do you have the savings to pay for repairs, taxes, and general home maintenance?
  4. Would it make more financial sense to spend or invest your money elsewhere?
  5. How do the monthly costs compare? Do the math – how does your rent compare to the mortgage payment plus the costs of strata fees and other regular costs of home ownership (eg. Taxes, insurance, etc.)?
  6. How stable are you in your job and life? Are you prepared to lock yourself into a mortgage or particular location?
  7. Are you emotionally ready to own a home? Homeownership is a full time job. Are you ready for the commitment?

Homeownership is a personal and sometimes emotional decision, but it can also be a profitable one. When making a choice of whether to rent or buy your home, consider this rule of thumb: If you plan on living in your home long enough for price appreciation to cover buying and selling costs, owning can be a better alternative to renting.

The decision of whether to rent or buy is a deeply personal one and you should make sure to do all your research to ensure that you are ready before jumping in feet first.

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