Tolga’s Tips: Rent vs. Buy

The decision whether to rent or buy is a complicated one, and unique to your individual circumstances. With the housing market in hot demand and the property values growing at a rate unseen before in the Canadian market it can feel like you have to get into the market now or you will have missed your chance. There’s no simple answer, and unless you have a magical crystal ball you will never know the answer, the decision is often based on your lifestyle and financial obligations. Here are some things to consider before you take the plunge.

The Time Commitment:

Real Estate is a long term investment and it’s important to consider how long you intend to stay in that property. There are costs associated with buying and selling in the short run, land transfer taxes, mortgage fees, moving costs, Real Estate professionals and lawyer fees that may reduce your appreciation in the short term. The Greater Toronto Area has seen steady and wildly unexpected gains over the past decade but these costs should still be considered in your decision to buy. It’s best to ask yourself where you see yourself in the next 3 to 5 years, will the property you are considering be able to accommodate your living situation, will the space you need be bigger, smaller? Is the location right for your work, school, overall lifestyle, or will you get sick of the commute? Consider as many factors as you can before making the decision.

Consider Your Finances:

Money talks ands should be a major consideration when deciding whether to buy or rent. Starting with the downpayment, a lump sum that will need to come out of your current savings and will most likely be a consideration when to the value of the property you can afford. It is best to have a minimum of 20% of the value, but for some this may be difficult, especially as a first time home buyer. There are some options to purchase a property with as low as 5% but this usually means more long term fees such as mortgage insurance, it’s best to talk to a mortgage professional. There are a few more financial considerations to owning a home, mortgage fees, utilities, home insurance, property taxes, and maintenance/repair costs. Having a stomach that can handle the risks associated with unexpected costs is also important as the chances are higher.

Generally, financial planning is easier when you rent, a basic rental fee and perhaps some utility charges can be expected. Basic maintenance costs may be incurred but the larger ticket items, like roofing or structural issues can be quickly passed onto the landlord. However, landlords differ in experience, knowledge and service, which can make all the difference to your experience as a tenant.

The stress free lifestyle of renting isn’t without its own costs. The money you pay towards your rent will never be seen again, while the mortgage payment is paying down the loan and earning the homeowner equity. Along with appreciation of the property it can make a significant impact for your overall net worth.

Advantages of Renting:

Less Maintenance Hassles & Expenses –  usually its just a quick call to the landlord who makes the call to the repair person

More Mobile – there isn’t much to consider,  or pay for when you decide to move. There are no land transfer taxes, commissions, or legal fees to consider. If you decide you no longer enjoy the neighbourhood, or you are not sure if you want to stay in one particular location you need only wait until the lease term is completed to make a move.

A Predictable Payment – Usually just the rent plus utilities, there are no property taxes, condo fees, repair costs or insurance costs.

Sometimes it’s Cheaper to Rent – This can be true if you don’t have much of a downpayment, but you are paying someone elses mortgage instead of your own.

Advantages of Owning:

Paying Your Own Mortgage – Think of it as a forced savings plan, although some of the payment is going towards interest, some is going to build your equity.

Freedom – You have the ability to express yourself with a new floor, a uniquely styled kitchen or a feature wall that speaks only to you. A the best part of all, you don’t need to ask anyone for permission.

Cash in on Appreciation – when the market grows so does your pocketbook. You reap the rewards of rising home prices. You flow with the market fluctuations so timing the market slightly is important.

Investment Options – Markets fluctuate, that isn’t news to you, however investing in Real Estate over the long haul has been more predictable and yielded higher returns than many other investment options (especially in the GTA).

Sometimes it’s Cheaper to Own – The rental market flows through highs and lows just like owning does, and can be expensive and unpredictable, with a decent downpayment your monthly expenses can be lower than rent.