Is it better to Rent or Own your home? Top 5 reasons for each
Everyone’s situation is different, it all depends on your finances and personal preferences.
Housing in Toronto is likely the biggest expense in any family’s budget. Understandably, Torontonians are torn between the options of buying a property vs renting one, trying to decide which route is more desirable and financially safe. Buying is a big commitment and before you go property hunting, you should identify whether owning a home is appropriate for you at all.
Some people view renting as throwing money away, instead of increasing your own assets. Others believe that Toronto real estate is too inflated and unaffordable. The truth is, it could be either, depending on your finances and personal preferences. Understanding all risks, rewards and financial responsibilities of both owning and renting is of key importance . We are going to help you with that.
Top 5 Reasons to RENT
- Monthly rental payments are easy and predictable, which takes a load off your shoulders, compared to owning a property. The latter comes with a baggage of fees – property taxes, condo fees, utilities, home insurance and much more. Many Toronto home owners carry so much debt that they can barely afford their mortgage payments. If you don’t have a good downpayment saved and you are not ready for constant stress of indebtedness, consider renting.
- Minimal maintenance expenses. Things break down. Things get old. When you rent, you do not have to worry about spending thousands of dollars fixing a roof leakage. While condominiums provide maintenance services, that comes at a cost. Monthly maintenance fees, according to Condos.ca currently averages $590 in Toronto
- It is often cheaper to rent. Depending on the size of your downpayment, rentals can be much cheaper short term. Long term return is a different story, but during the first several years renters are ahead of the game financially, compared to owners.
- Are you a nomad? One question to ask yourself is: where are you going to be in five years? Are you planning to start a new career? A family? Are you looking at overseas job options? Before you invest heavily in a Toronto property you should work out your five year plan. If you are unsure where your career is headed, consider renting.
- Buying has an opportunity cost: consider what kind of long-term return could you get if you invested the money instead of buying a home? Taxes, insurance, any difference in annual payments and of course, the downpayment – all add up to a considerable amount. Renter gets to invest the money which can potentially generate good returns. However, if you are not planning to invest, the only options left are keeping your money in a savings account and receiving minimal returns, or simply spending it. If this is the case, a home owner is in a much better position over the long term.
Top 5 Reasons to OWN
- Owning a property is essentially forced savings. Owning incurs higher costs, but one way of thinking about it is that part of your expenses goes towards paying off your debt. When renting, on the other hand, you are basically paying off someone else’s mortgage.
- Good Investment opportunity. While this is hardly the case for all markets, Toronto real estate historically provided stable and predictable returns on the investment. You should look into investment alternatives and decide whether there are better opportunities to make your money work.
- Tax credits and other benefits help offset some of the cost of ownership. The government of Ontario supports home ownership by providing tax credits and deductions for mortgage interest and property tax payments.
- Appreciation and leverage. Historically the assumption of future appreciation played a key role in real estate decision making, and for a good reason. Home owners enjoyed astounding appreciation of their properties over the past decade. Real estate has outpaced many other kinds of investment by far. Nonetheless, Toronto housing market offers no guarantees. There is always a possibility that we are in a bubble, and prices are going to go down. Similarly, the growth may continue, which will generate amazing returns on your leveraged investments. There is no profit without certain risk taking, and only you can decide for yourself which risks are worth taking without losing your sleep at night.
- Living the Canadian dream. Owning a property gives you a special pride of ownership and the feeling of security. There is great freedom to renovate and a lot more control. The emotional component is very important for many home owners. After all, you have to be happy and comfortable with your choice. Although many home owners move from one place to the next quite often, the feeling of owning a home is quite powerful.
So how do you choose?
Once you have considered the emotional component of renting vs owning (pride of ownership vs need for flexibility as an example), you should look at the numbers.
Comparing just the cost of monthly payments for renting to the cost of mortgage payments for owning is not quite appropriate, since it doesn’t take into account short term hidden expenses and long term benefits. Total cost of renting would include rent and insurance, and the rest of the money would be free to invest. Owning incurs much greater costs: principal downpayment, mortgage, interest, costs of maintenance, as well as insurance and property tax to name a few. However, wheels are constantly in motion: things break down, rental rates go up, real estate market fluctuates. Rent-vs-buy calculators offer a deeper insight into the numbers as well. Furthermore, it’s useful to look at condos and homes in the neighbourhood you are interested in and compare the costs of renting vs owning those specific properties. You will then be able to compute and take into account additional costs and benefits mentioned above.
Buying a home is one of the most important financial decisions you will ever make in life. Make sure you understand the numbers and all hidden costs and benefits before committing. Or if you would like a professional opinion on your current situation, our team will be happy to provide support and necessary tools for making an informed decision.
We are here to help. Contact us today for a free no-obligation consultation.