Posted on Tuesday 17 December 2019
It’s probably a question you’ve asked yourself: is it better to rent or own a home? Are you wasting your money paying your landlord every month? Would you be better off paying a little more for a mortgage and creating an investment? Or does a mortgage too much of a financial risk?
Making the leap from renting to buying can feel overwhelming, so it is important to consider the pros and cons of each. Now may be the time to consider your financial situation, goals and personal values to decide whether a mortgage is on the cards for you. Here is our simple guide to help you navigate the important decision between renting and buying:
The Pros of Renting:
You have mobility
Overall, renting provides a lot more flexibility when it comes to moving around. This may mean moving apartments locally, or having the freedom to chase a dream job overseas. By not being tied down in a long-term mortgage, you can retain some spontaneity in your life.
This can also mean moving into either cheaper or more expensive home as your income fluctuations continue. As long as you wait until your lease terms are up to make a move, you won’t face any significant financial repercussions. If you happen to acquire some windfall income, then the games get more fun. As you can either buy a home or continue renting and re-invest this windfall income for future gains.
You have fewer responsibilities
When you rent, you are naturally going to have fewer responsibilities when it comes to general maintenance and upkeep. If your dishwasher breaks, you can call the maintenance team, and lawn care or pest control is often built into your rental cost. And if you’re really lucky, you may even get to bypass the hassle of setting up and managing electric, water, and sewer bills by getting an all-inclusive lease.
Renting can sometimes be a lot cheaper
While you may pay a similar amount in rent as a mortgage each month, renting usually means skipping the extra costs such as mortgage insurance, building fees or tax implications. You also generally won’t be liable for the inevitable emergency expenses that come with owning a home.
You might get extra amenities
If you choose to rent in a housing community or an apartment building, you may get access to luxury amenities included with your rent that you otherwise may not be able to afford. Common amenities include a gym, laundry or parking. These included amenities may save you money overall, for example you won’t need that independent gym membership anymore.
You can’t renovate
Although some landlords may be more open to updates than others, renting typically means that you’re stuck with what you get. You can’t upgrade your appliances to newer, more energy-efficient versions, and you won’t be able to redesign the bathroom. Repainting your living room is off the table, and you might even be restricted on how you decorate with wall hangings or frames.
This can make it challenging to make your rental feel like your own, unique home—but it’s a tradeoff that many are willing to make for the sake of lower costs.
You’re at the mercy of your landlord
If you’re lucky enough to get a professional, courteous, and friendly landlord, you’ll likely have a very positive renting experience. But that isn’t the case for all renters in Canada. There are many horror stories of landlords who have significantly raised the price of rent each year, failed to maintain proper upkeep on their units, or even issued eviction notices out of the blue.
Getting into business with a landlord who is more focused on their bottom line instead of your well-being can be a slippery slope.
The rental market can be competitive
Demand for rentals is increasing in Canada, but provinces and cities are struggling to keep up. In 2008, there were approximately 37,000 new rentals—which sounds great, until you consider that the demand was for 50,000. That high demand and low supply can not only make it difficult to find a place when you need it, but it can easily cause prices to skyrocket.
The cost of renting is unpredictable
In Canada’s biggest cities, rent prices are on the rise. In 2019, the average price of a one-bedroom rental across Victoria to Montreal spanned between $1,200 to $2,260. (Not surprisingly, Toronto and Vancouver are the most expensive places to rent, with St. Catharines and Oshawa at the most affordable).
Keep in mind that these are just the average prices for a one-bedroom rental—once you get into two and three bedrooms, those prices could easily double! For renters, that high monthly cost can quickly counteract all of the pros that come along with borrowed space and make renting much less affordable over time.
A home can be a financial asset
Owning a home is, in essence, building equity. Even though your lender will (technically) own your home until your mortgage is completely paid off, you are actively working towards full ownership.
First, if you decide to sell your home, the best-case scenario is that you sell your home for more than you paid for it, generating a bit of profit. (There will never be an end in sight when you are paying rent; there’s a clear end to the tunnel with a mortgage).
Even if you sell the house for exactly the cost of your mortgage, that means you are getting your money back! In that scenario, you have essentially lived for free while you were in your home—and that’s something you’ll never get when renting. In a sense, a mortgage is a solid savings plan.
Your mortgage payments can also have positive ripple effects throughout the rest of your financial health, so long as you manage it properly and don’t sign up for a mortgage that is more than you can afford.
You have the freedom to make changes
Want to paint a mural on your bedroom wall? Thinking about installing a new bathroom vanity or expanding your kitchen? Want to update all of the lighting fixtures to fit your style? When you own a home, you can do all of this and more, and having control over one's life is one of the surest paths to happiness.
Owning a home gives you the freedom to make your living space truly and completely yours. You may not have the bottomless budget to make all of your upgrades at once, but you won’t have a landlord breathing down your neck and supervising every change that you make. You are your own landlord.
You get to choose your own amenities
We all have different priorities in our lives, so naturally will value different amenities in our homes. When renting, you may end up paying for fancy extras that you never use, but when you own your home you can spend money on thing you’ll actually use.
This may mean ignoring a home gym, but installing a double-wide kitchen and the newest appliances. The choice is yours to make your house feel truly like your home.
Increased financial obligation
Buying a house comes with more than just the mortgage-there are upkeep costs and taxes that will become a constant. Some of the costs, such as a real estate attorney or property inspection, will be one-off, though many will be recurring. Homeowners insurance and building fees will be a monthly cost on top of your mortgage repayment.
If you have already have unpaid credit card or student loan debts, adding all these monthly costs may not be the wisest financial move right now.
To retain the value of your home, it will require constant upkeep. Now that you’re the landlord, it will be your job to schedule a plumber, electrician or landscaper… and your job to pay for it. Managing a property is a big responsibility, which may take a lot of time on top of your regular job.
Ultimately, the answer to renting vs. owning often comes down to understanding your financial situation, assessing your long-term goals, and staying true to the qualities that you need to be happy in your personal living space. Take some time to get serious about analyzing your financial health and make the decision that feels right for you.