Buying vs Renting

Wondering if you should buy or rent your home? That is the question many people ask themselves.

It takes more than looking at your mortgage payment to answer this question.
Before you make a major decision, remember that there are both pros and cons to both.

The first step to buying a house is ensuring you can afford to place at least 5% of the purchase price of a home as a down payment.
You also need to make sure that you can afford all the other things that come along with home ownership, such as property taxes, maintenance fees, notary fees and more.

Below are a few things you should consider before taking this big step.

Benefits of Owning Your Own Home

There are a gazillion reasons why homeownership has serious appeal (not dealing with nosy landlords is definitely one of them). Here are some of the common benefits of owning your own home:

  • You build equity: When you make a mortgage payment, you build equity (the portion of your home that you truly own and isn’t encumbered by a mortgage). So each monthly payment takes you one step closer to owning your own place – something renting can’t give you.

  • It’s generally a good investment: Homes usually go up in value, so if you buy a home within your budget, the payoff can be plenty down the line. The general rule is to hold onto a property for five years or longer in order to reap the full benefit of the home appreciation.

  • Stability: With a fixed-rate mortgage, your mortgage payment is predictable and more stable than renting (yes, your lovely landlord can hike the rent).

  • More privacy: There’s no landlord policing your every move.

What are the Benefits of Renting?

It may not a popular opinion, but renting a home has some perks worth considering. Here are the pros of renting a home:

  • Cheaper: In general, rent payments tend to be lower than mortgage payments, and may cover other costs, such as utilities, hydro, cable, and internet.

  • Flexibility: In the era of Airbnb, renting gifts you the ultimate flexibility. Most leases are one year, but it’s possible to score an agreement that’s month-to-month. You may decide to get a short-term rental through a home-lending website. If you’ve got wanderlust or commitment-phobia, renting may work best for you.

  • Little or no maintenance: You don’t have to shell out a wad of cash when the dishwasher breaks or the basement floods. Call your landlord instead!

  • Financial freedom: As a renter, you’ll likely have more free cash to sink into investments and retirement planning.

Downsides of buying

Homeownership isn’t all unicorns and rainbows. Here are some of the downsides to homeownership, which may sway you towards renting:

  • It’s a commitment: You can’t just sell your house overnight or break your mortgage on a whim (at least, not without a hefty penalty). Buying a home generally means you’re sticking around for at least five years or longer.

  • Ongoing maintenance costs: When renting, your landlord is responsible for the upkeep of your home. But homeowners have to foot the bill for regular maintenance and repairs: whether it’s replacing the roof once every ten years or fixing an exploding toilet, you’re on the hook.

  • Mortgage payments can be higher: By and large, it’s usually cheaper to rent than to pay for a mortgage. However, this depends heavily on your location.

  • ROI can be slow: It can take time for the value of your home to increase, so patience is essential. Don’t expect an immediate return on investment.

  • Less disposable income: Homeowners take on considerable responsibility and debt, which may prevent them from investing elsewhere (in RRSPs or TFSAs, for example). In some cases, a homeowner may find themselves “house poor” – meaning a big part of their income goes towards the costs of homeownership, leaving little left over to pay for other needs and wants.

The Downsides of Renting

Let’s be honest: there are some unappetizing things about renting. Here’s are some not-so-great aspects to being a renter:

  • You’re not building equity: While renters avoid taking out a mortgage and footing the bills for running a house (which can be big bucks), they also lose out on building equity. Instead, your monthly rent cheque goes towards paying someone else’s mortgage.

  • The landlord is boss: We’ve all heard horror stories about deadbeat landlords and surprise eviction notices. Renting means you’re living on someone else’s turf – and they get to call the shots (within reason though…there are laws, after all).

  • Instability: In accordance with local laws, the landlord can hike the rent. A spike in your rent payment could trigger you to start packing – which is not only inconvenient but for cash-strapped people, could trigger a full-blown financial crisis.

At the end of the day, there is no right or wrong answer. Only you can decide if renting vs. buying a house is best for you. Buying a home is likely one of the biggest financial commitments you will ever make, so just because everyone else is buying, doesn’t mean you should too. You don’t have to buy a home to live a happy, successful life. However, if you can make it work, a home can become a great asset to you.