Renting vs Buying

In 2017, the age-old dilemma of renting vs buying couldn’t hold any more weight. If you’d asked this question 20 years ago, most would have resoundingly agreed that buying is a far better option; why pay down someone else’s mortgage when you can pay down your own, all the while building equity and securing your retirement? It’s not that simple anymore as home pricing in the GTA is growing further and further out of reach for the middle class, and even much of the upper class. The reality is this: one is not necessarily better than the other; it’s relative to circumstance. So, what are the factors? How do you decide which option is best? There are no easy answers to these questions. The fact remains that buying a home should be a very sound investment in theory. With that said, you’ll need to pound out the numbers to determine what you can and cannot afford, and you’ll need to be prepared to do some market analysis. It’s all about circumstance.

What’s the Market Doing?

This is perhaps the most relevant question provided you have money to buy. The GTA has seen some alarming jumps in home pricing. In fact, it’s been increasing at a rate greater than inflation, which is extremely abnormal. Canada has implemented new legislations and initiatives meant to tame the market, and it is expected that inflation will catch up to home pricing. With that said, it’s important to look at real estate trends when deciding to make the leap from renting to buying. The last thing you want is to buy at the height of the market, as this poses the risk of depreciation. Losing money on a home just isn’t the goal.

How Long Do You Plan to Live in the Space?

Buying should be looked at as a long-term investment, unless you are a seasoned investor. Even if buying at the height of the market, if you are in it for the long term, things should work out for the better. The market might take a dip, but that’s OK; just wait it out as you’re in no rush to sell in any case. Renting, on the other hand, allows you freedom to be nomadic. Are you single? Is your employment status unsecure? Then you’d better rent. Do you have a family? Is your career secured? Do you want a steady living arrangement for your family? Then buying is a great move.

How Much Can You Afford Monthly?

In 99% of the cases, a mortgage will be costlier than renting. If getting a mortgage will stretch your finances too thin, you’d better wait it out until you’re more financially secured. If you can easily afford the cost of the mortgage, great! But you also must factor in maintenance costs and upkeep. When renting, your landlord assumes responsibility for 99% of the maintenance and repairs. When you’re a homeowner, maintenance and repairs land on you; expect to pay 2-4% annually of your homes worth on repairs.

Do You Want to Rent out a Room?

Hypothetically, you could and probably would have a roommate when renting. The roommate will help cover your rental costs, which is great. But when you own your home, you can rent out a portion of the home and have that tenant help to pay down your mortgage. That’s a very different scenario that kicks your home investment up a notch. Moreover, you can create income by borrowing against your home. The big question here is if you’re prepared and willing to be a landlord.

Equity vs Inflation

Here’s a big issue: despite the current trends we’ve seen, equity typically increases directly in line with inflation. This means that the big take home you’ll get when you sell won’t be nearly as large as you thought. The prospect of buying a home at $500, 000 and selling it a few years later at $600, 000 is a great thought, but remember that the $100, 000 in equity won’t mean the same thing years from now that it currently means. You’ll have closing costs, land transfer tax, moving expenses etc.

Do You Plan to Invest Anywhere Else?

This is arguably one of the biggest factors. For most home owners, their home is their biggest investment. However, there are many other avenues of investment, stocks being a major player. With some research and guidance, renting a space and investing elsewhere can yield just as strong a return, if not stronger. But with that comes the need for research and resources. If this isn’t your forte, then investing in your home may be the best investment for you.

Freedom from Responsibility vs Pride in Ownership

Perhaps the biggest thing to think about is your lifestyle choice. When renting, you are free from responsibilities. You pay a set monthly fee and that’s it. If a pipe bursts, call the landlord. If a window breaks, call the landlord etc. It’s very low in terms of responsibility. Home ownership on the other hand, is a massive responsibility. This is your property, and without proper maintenance, you can forget about any profit on resale. You need to maintain the property and take pride in it. But isn’t that half the fun? If you feel this way, then home ownership can be an incredible experience. You want to paint the living room red? Go for it! You want to tear a wall down and free up space? Get it done! Home ownership can be fun, albeit a great responsibility.

So, the truth is there are no easy answers. Financially speaking, both options can make sense. It depends on a variety of factors; your best bet is to keep an eye on the market to determine the best times to buy and sell, and to thoroughly analyze your current financial status, goals and strengths.