August 30th 2021
Rent or Buy? Which Should You Pick?
By Rachel Burke
Should you rent or buy? The age-old question has been plaguing potential new homeowners for decades.
It used to be a lot easier to buy land and live off it for the rest of your life, but things have changed considerably over the past few years. With so many shifts in the housing market recently, Canadians who have saved money are eager to know whether it’s better to rent or buy. But renting or buying isn't an objective choice — there are hundreds of things to consider for both. By outlining the pros and cons of each, you can make a more informed decision about what’s best for your future.
Why not buy?
Typically, the mentality in the Canadian housing market has been to buy if you can buy. But recently, there have been some red flags emerging from the Canadian housing market for homeowners. This year, we’ve seen our highest home debt total — reaching $2 trillion in mortgage debt across the country. The Bank of Canada has warned Canadians about taking out so much home debt as it could cause a housing market catastrophe.
It’s no wonder so many first-time homebuyers are hesitant to purchase a house and get involved in the market. People buying homes and taking out huge mortgages when they can't afford them has created an almost "gold rush" mentality in certain cities in Canada. This creates a highly competitive space for new homebuyers. Younger generations with less disposable cash are often 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. Rent payments include the rent for that month and perhaps 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 recurring monthly costs. And if you don’t have a low mortgage rate, your monthly fees can end up being a lot more than most rent costs.
For more and more Canadians, buying a house feels like less of a possibility than it has in the past. With the excessive monthly fees and the amount of money you need to save for a down payment, most Canadians can’t afford to buy the kind of home 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 you’re living. Yet renting also has many downsides, and there is a reason people historically choose to buy.
Why not rent?
After reading the above, renting probably sounds pretty good, but it’s far from the perfect solution. Renting might be cheaper and offer more flexibility, but buying provides more security and is a better investment. When you buy a property, you own it, which means you can do what you want to your home whenever you want to do it. If you want to remodel or renovate, you can't if you’re renting.
Renting also never makes 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 out, but that’s about it.
In contrast, buying is a huge investment. You have to pay more fees at the beginning — plus monthly mortgage fees — but you own your home and it can appreciate in value. 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.
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.
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 mentioned 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.
In the end, it’s 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 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.