August 30th 2021
Rent or Buy? Which Should You Pick?
By Rachel Burke
The age-old question that has been plaguing potential new homeowners for decades is rent or buy. Historically, the housing market had been more straightforward, and it was easy to buy land and live off it for the rest of your life. Most likely, your future generations would live there, which made buying the only real option, but things have changed considerably in the past few years. With so many changes recently in the housing market, Canadians who have saved money are eager to hear the answer to rent or buy. However, renting or buying isn't an objective choice, and there are hundreds of things to consider for both. By outlining the pros and cons for each, you can make a more informed decision about what is best for your future.
Why Not Buy?
Typically, the mentality in the Canadian housing market has been if you can buy, buy! Yet recently, there have been some red flags emerging from the Canadian housing market for homeowners. This year, Canada has seen its highest home debt total reach $2 trillion in mortgage debt across Canada. The Bank of Canada has warned Canadians about taking out so much home debt as it could cause a housing market catastrophe.
It is no wonder why many first-time homebuyers are hesitant to purchase a house and get involved in the market. With so many Canadians buying homes and taking out huge mortgages when they can't afford them, it has created an almost "gold rush" mentality in certain cities in Canada. This mentality creates a highly competitive space for new homebuyers. Younger generations with not as much disposable cash are just outbid on their dream homes by older buyers looking for a good real estate investment.
It might sound simple, but another important factor in buying a home is how expensive it is. When renting, you pay minimal monthly fees compared to buying. Rent payments include the rent for that month and maybe renters insurance if you choose to get it. However, buying a property requires a large amount of money and can have high monthly fees. Mortgage payments, maintenance fees, property taxes, even homeowners insurance all add up and are monthly recurring costs. And if you do not have a low mortgage rate, your monthly fees can be a lot more than most rent costs.
For more and more Canadians, buying a house gets farther and farther away. With the excessive amount in monthly fees and how much money you need to save for a down payment, most Canadians can not afford to buy a house in the location or of the type they want. Renting seems like a much more manageable and cheaper option. It also offers flexibility to pack up your things and move if you find a new job or don't like the place where you are living. Yet, renting also has many downsides, and there is a reason people historically choose to buy.
Why Not Rent?
With the above paragraphs, renting is looking pretty good right about now, but it is far from the perfect solution. Renting might be cheaper and offer more flexibility, but buying provides much more security and investment. When you buy a property, you own that house, condo, land, etc., which means you can do what you want to your home whenever you want to. If you want to remodel anything or make some renovations, you can't if you are renting. Your options with the actual property itself are minimal when renting.
Also, renting is never actually making you money. When you rent, after you have paid all the rent, security deposits, and broker fees, you don’t get to enjoy things like home equity or a substantial asset. You might get your security deposit back when you move after renting, but that’s it. You make no money from the property and simply live there.
In contrast, buying offers a chance of huge investment. When you buy, you have to pay more fees at the beginning and even monthly mortgage payments, but you own your home, and you can appreciate the money you now have in your financial portfolio. Although you may pay a lot more to buy, it allows you to sell your house at the end for potentially more money than you bought it for and make a profit for yourself.
Owning land or property can be a major asset for anyone's personal finances. All around Canada, homeowner financial gains are outpacing most money markets, allowing your home equity to provide you with more capital to reinvest in your home or elsewhere. Renting does not allow you to net a financial gain in the end, though it can be an excellent short-term investment to rent an inexpensive space. In the long run, you are only losing money and not building your portfolio.
Which Do You Choose?
Should you rent or buy? The reality is there are even more factors to consider when asking this question than the ones shown above. Buying can be a significant investment in real estate and give new homeowners access to more money and credit in the long run. Still, it's very costly, and renting allows them to stay flexible and not be tied down to an area or property.
The truth about both is that it is very much a personal decision to make, and the answer can depend on your location, your job, or even your relationship status. When looking at these kinds of decisions, the true answer is to consult an expert. Seek outside help to gather all your financial information, and they will be able to help you choose the best option.
There are resources online that can help you calculate your options and see how much each option would cost you. Using these resources is helpful, but meeting with a real estate expert, like the ones at Properly, can give you the personal attention you need and provide you with a detailed answer. Whatever option you decide can't be the wrong one if you consider all your options and seek help, so rent or buy is all up to what’s best for you.
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