The argument to rent or buy has been waging for decades and the cost of living increasing only adds fuel to the fire. Truth is, there is no right answer and one is not better than the other. There are many benefits to both and the decision to buy or rent a home is entirely personal.
Back in the day, if you were twenty-five, there was an expectation that you’d be married, starting a family, and raising them in your own home. Home ownership was a more popular choice for young people as it fulfilled the ideals of the American Dream. As the decades rolled by and lifestyles changed, so did the idea of what makes the perfect living situation. Renting long-term became more popular and changed the perception of homeownership.
Buying a home
When you buy a home, you are paying your own mortgage, not somebody else’s. As you make payments on your home, you build equity in your property. This means that when it’s time to sell and move into something else, you have more spending power because you have been contributing money toward the value of your asset which has also likely appreciated. Your consistent payments go toward the principle and reduce your mortgage debt.
In most markets in North America, property values have appreciated significantly over the last decade. In Toronto, for example, a home purchased in 2008 for $400,000 might be worth somewhere in the neighbourhood of $850,000 to $1,000,000 in today’s market. Appreciation is one of the most important factors to consider when deciding where your money is best spent buying a home because of your potential return on investment.
Unlike renting, when you pay down a mortgage, you’re paying into your own pocket instead of a landlord’s. Depending on the terms of your mortgage, in ten years of home ownership, you could have paid off half of your home loan. Let’s look at the math using the Toronto example above:
Home bought in 2008
Purchase Price: $400,000
Down payment: $40,000
Mortgage loan: $360,000 (not including interest)
Mortgage term: 20 years
Home sold in 2018
Sold price: $850,000
Mortgage remaining: $180,000
Equity and profit: $670,000
That’s a huge chunk of change in your pocket. Mortgage payments and rental rates are usually very similar except that as a homeowner, you have the flexibility to modify the property and are entirely responsible for maintenance and upkeep.
Renting a home
The cost of living has increased astronomically, sometimes homeownership just isn’t in the cards. Or if it is, the flexibility of renting is more beneficial or appealing than committing to a mortgage with a five-year renewal period with no concrete plans for the foreseeable future.
Renting a home or apartment is a great option if you aren’t planning to stay in the same place for many years. That means if your job or school require you to move around, or you’re itching for a new vibe, renting is likely a better choice. It allows you to move apartments, cities, or countries without the penalty of breaking a mortgage.
Despite that rental rates have skyrocketed, in major cities like Toronto and San Francisco, they are still significantly less than the cost of homeownership when average salary is taken into consideration. There is almost no way that a first-time buyer would be approved for a million-dollar loan to buy a dilapidated shack on a $50,000 annual salary.
Renting also alleviates being responsible for major repairs. While typical wear and tear is the responsibility of the tenant, if the roof leaks, mold blooms, or the foundation develops a crack it is the responsibility of the landlord to keep their property in livable condition and remediate the issues. Major repairs and maintenance can cost a lot of money and to a new homeowner whose money is tied up in their mortgage, it might not be feasible to fix the problems right away. As a tenant, that responsibility is on someone else’s shoulders.
The decision to buy or rent your home is entirely personal. There are many pros and cons to each situation and weighing those for your personal situation will lead you to the right decision.
No matter which direction you go, seeking the help of a qualified professional real estate representative to guide you through the market, process, and purchase or rental application will save you time and money.