When it comes to real estate there are two options. You can rent (lease) a property or chose to buy and become a homeowner. If you are asking yourself if you should rent or buy most real estate professionals will encourage you to buy the property and become a homeowner as opposed to covering someone else’s rent if you choose to lease a property.
The reasoning beyond such a recommendation is simple. Real estate is considered a very sound investment. Unlike other types of investments, real estate will almost always appreciate in the long term.
Many homeowners have seen their home or investment property, which is most likely their biggest asset, appreciate considerably during the worst of the pandemic despite fears to the contrary. Recent Ontario statistics for January 2021, according to the Ontario Real Estate Association indicate that property values in Ontario have increased by 13.5% since January 2020 despite cracks in other areas of the economy.
Since real estate is not subject to the whims of the stock market, there can be a very strong argument made for putting money towards a down payment as opposed to investing these same funds vulnerable to the ups and downs of the publicly traded market.
Renting vs Buying: What’s Right for You?
Although the rule of thumb is too lean towards buying rather than renting, there may be times in life when renting could be the preferred option. Different factors must be present to make investing in a property worthwhile and the best financial decision.
- Ask yourself if you are going to be in a particular location for the long term ( at least 5 years).
- Ask yourself whether you have pressing debts to pay off.
- Do you have a sufficient down payment saved?
- Is your income reliable and sufficient to take on a mortgage in addition to the other expenses of owning a home?
Many Ontarians interested in making the leap to homeownership may not be fully aware of all the costs involved in purchasing a home in addition to the monthly costs necessary in owning a home. Conversely, it may be surprising to find that the monthly mortgage payment may be less than you are currently paying for rent with sufficient down payment and favorable interest rates. Factoring in all the variables, ultimately your financial circumstances will dictate whether it is the time to buy or best to continue renting.
Pros and Cons of Renting
So, let’s look at the arguments for renting:
- There is no need to worry about maintenance costs and Property Taxes
- If you are currently leasing a condo in a building with a pool or gym, then you will have access to these amenities.
- There is not a need to put a down payment on leased property. Money may be invested in other ways.
- When you own a home, moving and being able to do so quickly becomes more difficult. Renting allows for this mobility.
- When renting, there is no need to be concerned about how the property is doing in terms of appreciation.
- Renting provides for more overall flexibility, especially the flexibility to downsize or move to a desirable neighborhood that you may not be able to find a house to buy in.
- Although it is always advisable to have rental insurance, these insurance costs are lower than what a homeowner will be facing.
- The cost of utilities tends to be lower than what a homeowner will be paying monthly.
How about the cons?
More than any given factor the biggest con of renting means that you do not own your property and you are paying someone else’s mortgage. Some other cons include:
- There is little wiggle room to renovate or make changes to the property because you do not own it and must adhere to what is dictated in the rental contract.
- Many things that may have to be done to the property require the consent of the owner.
- You will have to deal with a third party when negotiating. A leasing agent will go through the owner and vice versa slowing decisions down.
- You are not making money from the property. Owning a home means you are building equity in your property. This creates wealth which is not possible when renting someone else property.
Pros and Cons of Buying
Aside from the obvious advantage of owning your property and building equity in your home as you pay off your mortgage other advantages include:
- General property appreciation over time. The appreciation represents money in the pocket.
- You are in the position of generating wealth in your property.
- Your home is your legal property which will allow you to make any decisions about your home.
- Your home can be rented out which will help pay off your mortgage.
- If you keep your mortgage in good standing, then your credit score will increase as you diligently pay monthly mortgage payments in full and on time.
- As equity is built in your home several mortgage loan options will enable you to access equity to pay for other expenses or put money towards a down payment on a rental investment property.
So what are the cons?
- There are inevitable costs involved in buying a home including closing costs, appraisal fees, real estate commissions, property taxes, down payment, and home insurance as well as the cost of the monthly mortgage.
- If a property falls into mortgage arrears, there will be damage to the homeowner’s credit score.
- Although very rare, there is a slight risk that a homeowner will not make a profit when selling their home. This is especially true if there are secondary mortgages on the property that need to be paid off in addition to the principal mortgage.
- If there is a need to move quickly, the cost of selling a home can be significant, and a quick sale is not guaranteed.
How to Use Our Rent vs Buy Calculator to Your Advantage
At Mortgage Broker Store we will be able to give you an approximate estimate of the cost differences between renting or buying for your particular financial situation. We have a specialized financing tool that will determine which option may be the most cost-effective for you currently by simply plugging in numbers in the given categories.
See our Rent vs Buy Calculator. If you have further concerns or questions concerning the significant decision as to whether to rent or buy we will be able to look at your unique financial picture and offer further advice as to the most economically advantageous option for you.
If banks are not an option due to damaged credit or have difficulty proving monthly income, at Mortgage Broker Store, we have access to a broad network of private lenders who will be able to negotiate private mortgage loan options if you choose to move towards homeownership.