Why rent when you can buy?
Although it varies widely from city to city, the upfront cost of buying a home is only a little more than renting in some areas of the country.
Which means, with interest rates still relatively low, this might be the time to seriously evaluate the decision of whether to rent or own, say realtors.
Let's say you’re renting now for $1,300 per month. Assuming a mortgage rate of $5.25%, $1,300 will be equivalent to a monthly payment on a mortgage of $218,000, based on a 25-year amortization.
If you chose the 30-year or 35-year amortization, the $1,300 would be equivalent to monthly payments on mortgages of $236,000 and $251,000, respectively – the cost of a modest place in markets like Halifax or Gatineau, Ottawa’s sister city, for instance.
Wait a minute, though. The true cost of home ownership is often around 40% higher than your mortgage payment alone.
When you add on all the extras like property taxes, condo fees, utilities, insurance and normal maintenance and repairs you can easily be looking at an actual monthly housing payment that’s closer to half as much again as your mortgage payment alone.
On the other hand, while you can’t do much about taxes, a big portion of your condo fees goes towards expenses that you may already be paying in addition to your rent, such as heating, water, etc. And then there’s the potential growth.
Fair enough, but your home needs to grow in value by at least 15% to break even from transaction and maintenance costs, maintains the Money Mechanics blog.
Need a visual? Use this quickie graphic to give you a rough comparison, keeping in my mind that US homeowners get a tax break on mortgage costs that Canadians don't enjoy.
What do you think? If you live in an area where all this might be a viable option, are you better off stretching to buy or opting for the care-free rental choice?
By Gordon Powers, MSN Money
Posted by: Renter | Jul 30, 2021 11:16:03 AM
There are no set rules, about which decision is always better or worse. I've been a home owner in the past and am currently an investor (stocks, real estate, small businesses) but rent the homes we live in.
We like to move around a bit (young couple) so we get fully furnished places. Rent $3000 per month. Cost to buy equivalent property $1.4 million + (and I'm being conservative). Assuming a 20% downpayment (pretty hard to sock away $280,000) and still a mortgage over $1.1 million? even assuming $500 monthly on each $100k borrowed that is over $6000 mortgage payment. And people have to realize most of that mortgage payment (like rent) is going to someone else (ie the lending institutions. You could take the $280,000 down payment and invest it at 10% (yes they are hard to find, but they are out there) and it covers your rent. A $1.4 million home is not a mansion either (just ask anyone living in Vancouver).
Similar thing in Toronto. Condo we were renting $2000/month. To purchase it costs $350,000. Condo fees were close to $700 (it had pools) taxes were a couple of hundred a month + mortgage payments easily brings you over $2000 in costs. Plus again deprivign you of money you would make off investing your downpayment.
Unfortunately in today's market in a lot of places I know lots of people who are house poor, can barely make their payments, are stressed to the hilt and aren't putting away anything for retirement. We have been investing for several years now, and our dividends easily cover our rent + extra to reinvest to continue to expand our dividends, etc.
You can do just fine renting so long as you have the discipline to invest the extra and you are smart with your money. The decsion to purchase or rent depends on the market and your own personal situation. I'd suggest everyone do a true cost of both before making a decision to buy and consider the following as well.
If you are renting you don't have transaction costs that gobble up 5% + everytime you move. If you are renting if the fridge breaks, you call the landlord and they pay to fix it, if there is a leak, it is not your problem, etc.
If you are owning you get capital appreciation (assuming you don't overpay and the market rises), you get security of knowing you have a home for as long as you want.
Just be smart with your money (and future) no matter what decision you make.
Posted by: Guy | Jul 30, 2021 2:17:10 PM
Great feedback. Many of us purchase a home for the freedom, comforts and yes we will be able to sell it at a higher price in the future. I do disagree with the added 40% cost on top of the $1300. It should be higher than that. Your taxes should likely come in at $3600+ per year + $3600 in utilities and all the other costs will run you approx. $800+ per month. That's about 65% more. The $1300 will give you a $250K mortgage. If your house appreciates 4% per year as per the article, your house will double it's value after 18 years to $500K (rule of 72). So you need to simply say that as a homeowner, it cost you an additional ($800 mth x 12 x 18 years = $172 800) on top of your $1300 mortgage cost. You gained that back in the value of your home when you sell at 500K.
If the renter set aside that same $800 and secured 4% return after taxes on their investment for 18 years, they would have $256 043 in their bank. So what is best? A disciplined renter, who did invest the extra $800 that would have cost them in extra HomeOwnership expenses; walks away with $256K OR a Homeowner that now has double the amount of $500K in the bank? No brainer! The latter doubled their investment and had the luxury of living in a home for 18 years.
Posted by: i smile | Jul 30, 2021 4:09:21 PM
Whatever you do, buy, or rent, don't put yourself in the vulnerable position millions of people in the U.S. did, where you have no equity anywhere, and on top that, millions also have the added problem of no income either. In simple terms, this is called having all of your eggs in one basket. Splat!
Posted by: cory | Jul 30, 2021 8:34:58 PM
well i you can calculate numbers and crunch them if you what renting is not the answer for everyone no is b ying a home for retarted prices only for banks and rich people to profit off people when the average person hasn't had a personal income increase to substain this over priced economy for rich people who are greedy to make more and more not with some but all want more so why arn't we making 90 dollars an hour to pay for this stuff and when it falls apart people aren't gona want to pay for a 500000 dollar hame they will just give it back to the bank and not pay for it this all leads to a bad bad problems people don't have the money for this were all screwed if ur gona pay for this. it all leads to a big depression numbers or no number were screwed.
Posted by: Lisa | Jul 31, 2021 7:34:25 AM
First of all, I used to be all for renting. That was about 15 years ago. After alot of convincing about 10 years ago, my husband and I bought a home. Now, over a decade later and alot of renovations, the home I'm in is STILL cheaper than renting. Why?? The VALUE of my home has skyrocketed. Even in an economic downturn, the value of my home is still going up. However, the PRICE of my mortgage is NOT going up. Remember that.
To the person who said that the mortgage goes to the bank, so it's still like rent. You are wrong. Remember, that money is going into YOUR pocket. Remember, you are slowly paying off an item that YOU will own, when all is said and done. Rent money, is always going into someone else's (landlord's) pocket.
The only people who "win" by renting are those who truly are living dollar to dollar and can't afford to fix their own problems (plumbing in the bath, example). Yes, you have to take a serious look at your financial state before buying, but if you can do it, a mortgage, if even a small house, is definitely more worth it...no question.
Posted by: Govt. want people to gamble all their life | Jul 31, 2021 11:58:21 AM
Housing is a basic need especially in the cities where the most jobs are, but
government does nothing to provide affordable housing in these cities to large
percentage of people with low average salaries 30k to 50k, rather blindly
promotes house gambling that makes prices so unrealistic. Demand and Supply is
just a con game formula to benefit rich only. It should not apply to humans very
basic needs. Housing should be non commercialized and everyone one should have
equal opportunity to own a decent house to live with dignity and not like a
modern time slave living in open concentration camps that are cities with jobs
and are used to profit the gamblers and rich with capatalist auto mation. It
all looks like a organized mafia, if government provide affordable housing in
cities then who will live in thousands of tenant buildings. Does that make
sense? Govenment make is hard for people to take control of their lives.
Posted by: watevr | Aug 2, 2021 7:39:06 PM
...rent vs buy...crystal ball anyone...location(x3) and market resale...can't go buy history...the U.S. has proven that.. if you're renting for less than a $1000.00/ month in total stay renting until you get your downpayment (20%). Don't rush into the market...Realestate sharks have to live too.
Posted by: truth teller | Aug 7, 2021 6:56:51 PM
RENT OR BUY??? How about neither! Attention all idiots, buy some cheap land and build your own house, mortgage free!!! This article is meant to get you to think the only options are rent or get a mortgage...BULLSHIT. People have forgotten about building their own house on some land. Society is brainwashed to think you HAVE TO GET A MORTGAGE. That's what the bankers want you to think. Do you really want to sped 30 years slavng away to pay off a mortgage? Imagine all the interest and costs you would save if you built it yourself. Build a bit at a time, you don't have to do it all at once. Once you have some land, you're all set. Stop borrowing money from the money lenders!
Posted by: JAY ELLE | Aug 9, 2021 5:42:15 PM
It is way better to buy than to give your money to the one who,,,, as they always said "WHY ARE YOU PAYING SOMEONE ELSE'S MORTGAGE" and here in Alberta prices are cheap.... When the oil states and it is when, not IF, ( they are already showing signs) people will wish they had bought .... my second thought is did you ever notice how small lots are getting,,,backlanes and greenspaces a thing of the past, and if you have an rv, plan on paying for storage rental... I personally think buy now well you can get some choice at a reasonable price...
Posted by: Dan | Sep 16, 2021 7:05:21 PM
The albertan is a know it all and blogger who always commnets on all sites..first he says he is not a realter but works for companies that buy how many properties,,awww in what capacity ? He is I suspect a tea party american - card carrying - republican - you know must carry a hand gun on your person at all times to prevent crime type -
Posted by: Bad Credit Mortgage Victoria BC | Oct 15, 2021 3:29:47 AM
Some people prefer renting than owning a house because of their financial ability. They do not have enough money to pay those monthly loans.
Posted by: Jay | Oct 27, 2021 3:26:10 AM
Nowadays it's my experience that with what the government, city, utilities, repairs and on occasion bad tenants that wreak the place and don't pay rent till the landlord gets them evicted that landlords are unable to lwoer the rents to a much more reasonable level so i don't blame them for keeping rent high (except for the greedy pieces of garbage that just raise rent because they can to make more money, people like that should lose their buildings).
I also am a renter and I would NEVER buy a building in todays economy, get a mortgage then within 5 years your utilities, mortgage and taxes all go up to a point where you can't possibly afford the payments anymore because greedy ceo's and governments have to maintain a constant profit increase because they keep spending all the money they keep taking from us.
Canada now belongs to business and government, the land that used to belong to the people is gone replaced by debt and taxes to serve the rich.
Posted by: jamessamuel111 | Nov 23, 2021 12:56:30 PM
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Posted by: Dad was right | Dec 18, 2021 3:08:31 PM
My Dad went through the depression on the prairies and then was gravely wounded in WWII. A legacy of that was a clear message that it is important that you can look after yourself, debt is not your friend, and things can change on a dime. Don't forget that a big part of home ownership is, once you pay off the mortgage, no one can touch what is yours. You have a place to live in... period.
I bought a fixer upper and learned to do DIY carefully and properly. I paid other people only when I had to. I bought good quality 2 year old lease return cars, maintained them well and drove them til they dropped in the harness. Each car lasted over 13 years. I took a modest vacation every year, had a budget for entertainment, put in all the RRSP money I could and paid extra down on the mortgage by paying more than necessary in weekly payments. I paid off my mortgage in 14 years and was totally debt free.
In 2009 I lost my job.
BUT I have a place to live and no one can touch that. It turns out I met a great fellow and we changed cities so that he could have a good job. I rent my house to a friend at a very reasonable rate that covers my costs (plus a bit) and encourages this great renter to stay. In a few years time we will move back to a wonderful home that is mine and free and clear. Picture your life circumstances drastically changing and you might see that owning your home is worth any amount of opportunity cost for the money.
Low mortgage rates are a chance to buy a home and pound down that mortgage like crazy before the interest rates climb steadily (and they WILL) and while your life circumstances are such that you can pay off the bank and get that home equity in your name.
Dad was right. It is important to be able to look after yourself, be very careful of debt, and never forget that your life can change in a moment. Listen to my Dad.