Renting VS Buying A Home

Patrick Fields
Published on October 6, 2019

Renting VS Buying A Home

So which is better, renting or buying a home? We’re told it’s always better to buy than rent. But it really depends on your own situation or circumstances! Times have changed. The high prices of real estate in some big cities is definitely discouraging for many people and that can cause home ownership rates to drop.
There’s an old misconception out there about renting that needs to be addressed. You’re not just “throwing away your money” if you’re renting. While that might be true on occasion, there are times when it might make more sense to rent.
Here are some pros to renting!

1. You have just moved to a new city and aren’t sure how long you want to stay!

Renting definitely makes it easier to move. If you’d like to relocate to another part of that city, province or country – it’s usually as simple as giving your landlord 60 days written notice. When you own a home it can be more difficult to pack up and leave ( if there are lots of homes for sale it can take longer BUT in a hot market with very few homes for sale it might be quite easy) If you get a great job opportunity in another city or province, it’s can be tougher to relocate – selling your home can be costly although depending on the company you work for they may pay selling costs!

2. Fatten your bank account If You Invest What You Save

Renting can be less expensive than owning a home. If you are renting a place with several friends or a small basement suite you can probably spend less per month and, all you’ll have to worry about is paying your rent and some utilities. This leaves you with extra monthly cash that you can AND SHOULD invest! If you are making a sacrifice in your living situation make sure you focus on paying down student loans, or other debt and invest in RSP’s or TFSA’s or save up the down payment for a home of your own!
Now this can be quite tricky: you have to be VERY financially disciplined for this to pay off. Don’t think short term and spend money on eating out all the time, or buying new clothes or a fancier vehicle if those are not needed.

3. IN THE SHORT TERM RENTING IS CHEAPER THAN BUYING

When you rent, all you have to come up with is the first and last month’s rent. No need to save up the 5% down payment for a home. Also, when you buy a home, you’ll need to pay closing costs. These can be between $1500 to $4000 roughly and will include the home inspection fee, real estate lawyer fee, any pre-paid taxes and homeowners insurance.
There’s also repairs and maintenance. Homeowners are responsible for all of their home repairs, such as a new roof, windows or furnace. Renters, on the other hand, can just call their landlord whenever they need something fixed.

4. You Have Some Rent Control

Depending on where you live, you might be lucky enough to benefit from rent control. That means your landlord can only increase your rent a certain percentage once per year – which in turn can keep your cost of living down and leave you with more money to invest.

5. It does not make sense to buy a home if you are carrying high-interest debt. Focus on paying that off first before buying a home. It makes little sense to borrow money for a mortgage when you’re paying 19 or 20 per cent interest on a credit card!

THE PROS TO BUYING!!

1. Build equity and befit from helping your friends!

When you buy your home, it’s a forced savings. You have to pay your mortgage to avoid foreclosure!
Buying can also be a source of income. If you have extra rooms, you can rent to a friend or tenant (short-term or long-term) while you sock away some money. Then take some of their rent money and put it down against your mortgage which will help you pay it down much quicker!
And when you buy, you’re able to use what I like to call “other people’s money.” The bank loans most of the money when buying. And if the home appreciates in value, you can come out ahead in the future, plus have a paid-off home to show for your efforts. The government also offers tax credits and deductions to encourage homeownership. And currently, you don’t have to pay any tax when you sell your principal residence.
Then there’s the fact that rent never ends, whereas mortgage payments do. If you have a mortgage and pay it bi-weekly accelerated (meaning you pay every 2 weeks instead of once every month, you can pay off a 25 year mortgage in just 19 ½ years!

2. YOU CAN BUILD YOUR INVESTMENT PORTFOLIO

You can buy your first home with just 5% down and then live in it for a while, then decide to rent it out and move into your next principal residence with just 5% down and do this over and over! Or find a little fixer upper, do some renovations to build up the equity, refinance it to pull out some equity and then use that on your next principal residence.

3. You can borrow part of the down payment interest free! The Canadian Government just released it’s First Time Home Buyers Incentive where you can borrow 5 or 10% of your down payment depending on the home you buy! Click the link above to watch my video on that.

4. You can have pets!! Not an unlimited amount of pets, but you can have up to 6 cats and 3 dogs licensed with the city! AND in Edmonton we actually have an Urban Hen program where you can apply to have up to 6 hens in your backyard! I doubt a landlord would let you have any chickens!

If you are renting you might have to pay extra every month or give a larger damage deposit to have a dog or cat if they will allow it at all.

5. YOUR KIDS WILL PERFORM BETTER IN SCHOOL & BEHAVE BETTER.

Researchers have found a positive correlation between homeownership and children’s academic achievement. Because most homeowners stay in their homes for a longer period of time, they provide a more stable home life for children, which, in turn, affects their academic performance. And A Canadian study also found that homeownership decreased the incidence of behavioral and emotional problems among children ages 4 to 16 years old.

6. You can make changes to the home and do renovations when you wish! You usually need the permission of the landlord even if you want to paint a wall, and when you own, you gain the benefit of any extra added equity when its time to sell.

7. You build up your credit!

Additionally, when you own a home, it means that you can use either take out a line of credit against your equity when needed for other large purchases or it builds your credit so you can buy a new vehicle or an investment property.

HERE ARE 2 UNPREDICTABLE FACTORS!

If your landlord decides to sell the home, you might just be told one day to start expecting that people will be going through the home as potential buyers! If it is sold you could be given 90 days written notice and you’ll have to find yourself a new place to live.
The other unknown is Changes in the real estate market! If you are in a rising market you can greatly benefit from paying down a mortgage and enjoy inflating housing prices. As an example our average price in Edmonton went from $195,000 in July of 2005 to $256,000 in July of 2006 and then up to $356,000 in July of 2007! Imagine timing that one perfectly! Now you can experience the opposite where you buy and the market falls just like the stock market – however you always need a place to live and at the end of your mortgage term you still have an asset that you can sell.

There are convincing arguments on both sides of the buy vs. rent debate, and which ever you choose should ultimately depend on your personal circumstance, rather than the views and decisions of your friends or family, make sure you honestly evaluate your financial situation, as it’s one of the most influential factors in your final decision.

Did you know?
According to an RBC home affordability study, Edmonton offers the most attractive cost of ownership vs any other major city in Canada! For instance, the average homeowner in Edmonton will spend 28% of their income on their mortgage compared to a homeowner in Vancouver who will spend as much as 88%!
It is great to live in such an affordable area!

I am going to include a link to a rent or buy calculator so you can see which scenario is right for you. If you have questions or would like to sit down and discuss buying a home of your own, just give me a call, my cell number is 780-915-2056

https://www.nbc.ca/personal/mortgages/calculators/rent-or-buy.html

https://www.edmonton.ca/documents/Urban_Hen_Procedures_Guidelines_Updated_June_2018.pdf