Posted on Tuesday 17 December 2019
It’s the age-old question: 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 sink you even further into debt and set you up for financial failure?
Choosing between renting or buying a home is a decision that we will all have to make at some point in time, no matter how hard we try to avoid it. But understanding which one is better for your financial health is far from black and white. To make matters worse, there are tons of commonly held misunderstandings and myths about renting and buying, which only muddies the waters even further.
If you’re not exactly sure how to merge your financial health with your goals and values, this article was written specifically with you mind! In the sections below, we’ll talk about the pros and cons of renting vs. owning to help you get a better sense of which one is right for you.
By and large, perhaps the biggest benefit to renting is that you are much more mobile than your homeowner counterparts. Most leases run on a year-by-year basis—so if you decide that you want to upgrade to a new place, get a cheaper rent payment, or live in a different neighborhood, you can always sign another lease. And as long as you wait until your lease terms are up to make the move, you won’t have any significant financial repercussions.
Mobility means freedom—to change locations, provinces, or even countries—without having to move mountains. Financially speaking, this means that you have a bit more control over your monthly cost of living. For many renters, this is the best part about choosing to rent their home instead of owning.
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.
As a homeowner, you don’t have these types of services included in your mortgage—so if your dishwasher or microwave breaks, it’s all on you to fix it (and to pay for the replacement cost).
In some cases, your monthly rental payment might be the same as what you would pay for a mortgage, but there are additional costs to consider. It isn’t just about comparing the flat price of your rent to the price of a mortgage. The lower level of responsibility with renting means not having to worry about the extra financial burdens that come with homeownership—which makes life a lot more convenient, too.
For example, you don’t have to pay taxes or mortgage insurance, and (hopefully) you don’t need to factor in an HOA fee. It’s a lot easier to manage your monthly bills, settle debts, and set aside money for saving when you don’t need to worry about those hidden expenses.
If you’re renting in a housing community or an apartment building, you might get access to amenities as part of your monthly rent. These could include:
Renting can make it easy to access a wide range of extras that aren’t always included in homeownership—and if you use them on a regular basis, taking advantage of the resources that are already included in your rent can save money in the long run.
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.
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.
Do a quick search online and you’ll find plenty of horror stories on landlords who have significantly raised the price of rent year over 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.
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 (see more below).
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.
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. And that comes with some financial benefits of its own.
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.
Home ownership tends to put your spending in perspective: you may find that it’s much more worthwhile to set up an emergency savings account to cover any last-minute repairs, or that impromptu shopping trips are a thing of the past when you have a mortgage in the background.
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.
Sometimes the amenities that come along with apartment living aren’t the greatest, or they aren’t all that useful for you. And unfortunately, you’re not going to get a discounted price on your monthly rent as a result. If your apartment has a sub-par gym facility, or if you have your own washer and dryer and won’t be using their laundry room, those maintenance costs are still included in your rent.
But when you own your own home, you have a lot more freedom on choosing the kind of amenities that you actually want. Not only does that give you greater control over the actual quality of the amenities that you get for yourself, but you also get control over the related cost, too.
Part of the deal that comes with being a homeowner is that you are agreeing to stay in one spot, at least for a little while. Unless you plan on immediately renovating and flipping a house, you are likely going to stay in your home for five years or more.
And many new homeowners fall into the trap of thinking that they will still be relatively mobile after they buy a home. It’s easy to think that you can purchase a home, make updates, sell it and move on within a few years for more than they paid—but the stability of the real estate market goes through significant fluctuations, so this is rarely a sure bet.
Mobility is a double-edged sword. If you’re looking to purchase a home, chances are that you aren’t interested in moving anytime soon. Staying in one spot can be comforting and rewarding, especially if you find a specific area or neighborhood that you really want to settle down in. This makes a lot of sense for people who have retired and don't need to move around for work.
But the unexpected turns in life—such as getting a new job out of town or needing to be closer to family—can turn mobility from a luxury into a necessity. In that case, you may need to either put your home on the market and wait for the right buyer to come along or rent your home out to give you that mobility back.
Many new homeowners don’t think about all of the extra financial responsibility they are adding to their plates by purchasing a home. If something breaks, it is now your job—and your job alone—to ensure that it is fixed.
That might mean scheduling and paying for work performed by a general contractor, plumber, electrician, paver, landscaper, and more. Or it could mean skipping the repair process and going straight to replacement, which can easily rack up high expenses. When you own a home, it’s all on you to make sure that maintenance is scheduled, completed, and paid for on time—which can be a serious impediment to your financial health if you aren’t careful.
Buying a home is not a simple purchase—it takes a mountain of paperwork and thousands of dollars in preparation for the downpayment and associated closing costs, such as hiring a real estate attorney, inspections, and enlisting the help of a real estate agent. That’s just the beginning of your costs: you’ll also have to pay your mortgage, homeowners insurance, and local taxes.
While some of these costs will only be incurred one time, there are plenty of recurring costs that apply throughout the life of your mortgage. If you are already deep into debt from credit cards, student loans and personal loans, adding a mortgage to the mix might not be a smart idea. It’s a purchase that has to be approached thoughtfully with your long-term financial health in mind—otherwise, you can find yourself hundreds of thousands of dollars into debt and become “house poor.”
Being “house poor” is what happens when you spend the majority of your income on your house. This situation comes from spending too much on your mortgage, insurance, utilities, taxes, and general home maintenance costs. It leaves you stretched for cash and struggling to make all of the other payments in your life. Credit card bills may go unpaid, vehicle loans may default, or you could end up completely cancelling your savings goals.
The best way to avoid becoming house poor is to understand your full expenses and prepare. You should have a fund set up for additional costs and repairs before you purchase a home, and have a budget set in place so that you can afford your mortgage costs (without sacrificing all of the other bills you have in place already).
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.
Don’t forget: whether you choose to pay rent or a mortgage, you’re still going to have to spend some money each month on a space to live in! As with so many financial decisions, the key is making sure that you can afford it.