Here’s a story I hear pretty often:
“I’ve been renting for years at my location but my landlord is selling the property (or wants to move back in). Should I keep rent or should I buy?”
“If I buy, does it make sense for me to live in it myself, or should I buy an investment property and keep renting?”
If these are questions you find yourself asking yourself too, read on! In this article, we’ll be looking at the myths as well as factors that need to be considered in answering what will be the “right” choice – for you!
- It’s better that I wait to buy because then I can save for my down payment and afford a higher priced home.
- Renting is dumb because you are throwing your money away and paying someone else’s mortgage. I might as well buy because then at least I’ll be paying the same amount in rent to my monthly mortgage (which is at least partially my principal).
- Buying a house is too expensive. If I bought a home, I would be house poor.
- Buying a house is really stressful and I don’t have the time to spend on doing it.
There are a lot of assumptions in all four of the above extreme myths. Are any of them right or wrong? Well…it depends. Let’s first look at the pros and cons of buying vs. renting.
Why Buy A Home At All?
- Long-term benefits. After 25 (or so) years, you won’t be paying rent anymore and you’ll have a much easier time retiring. If needed, you can also sell your home in the future for medical care (or even travel!).
- Financial gains. The home may appreciate in price more than you’ve paid in mortgage, interest, taxes, and maintenance. This can mean you’ll earn a return, or at least break-even.
- Emotional security. There is something to be said in feeling more secure when you know you own your own home, and that it cannot be taken away from you. Compare to the situation of renting, where albeit ample protection under the Landlord Tenant Act, your landlord can take back the property if they choose to sell or move into the home.
Why Keep Renting?
- Owning a home is expensive. Some say that for the same property you rent in, if you chose to buy it, you’d likely to be looking to pay about 40% more due to interest, taxes, and maintenance. Keep in mind that buying in 416 (rather than York region 905) means paying land transfer twice. On the other hand, there are some affordable areas left in the GTA. Whether the location will fit your intentions, is to be determined.
- Better opportunity costs. Investing your money into a home has an opportunity cost. You might have been able to invest the same amount of down payment, taxes, insurance payments, and interest at a higher return rate. In other words, you could have made more money investing your money elsewhere.
- Less hassle. Being a tenant means you don’t pay for (most) repairs and maintenance. This is true, assuming you have a great landlord.
The Reality (factors that make up your answer)
Anything worth doing deserves your time for thorough understanding. Yes, the process of home ownership can be complex and even an emotional rollercoaster. But so are some of the most incredible aspects of life, and negative experiences can be offset by working with a team that can educate, guide, and support you through the process.
Here are some considerations to get you started:
- Your lifestyle. How often do you move? The longer you are interested in keeping your home, the more costs are spread out over a longer span, which can be attractive. You will have a longer time period for your property value to appreciate as well.
- Your intentions for the property. Are you buying for investment, or as your principal residence? You might find that you want to purchase an investment property in a location where you don’t want to live, but that market rent means you’ll either break-even or have positive cash flow. This could offset your own rent.
- Your finances. Do you have savings for a downpayment? Keep in mind the minimum in Ontario is 5% (resale properties). If you’re looking for a new build, this is non-negotiable and usually around 20%. Number crunching with our mortgage calculator may be the first step. Note that the mortgage calculator is only a beginning. To find out for sure, you’ll want to speak with your bank, a mortgage advisor or broker.
- The Housing Market. Here’s where things can get fascinating and also tricky. What “makes sense” is affected by:
- Rental prices vs home prices
- Interest rates and mortgage qualification rules (OSFI)
- The persistent low supply in the Greater Toronto Area and the consistent influx of immigration that keeps our prices creeping higher and higher
- Other investment markets: what is the growth rate of competing investment opportunities?
We wish we could give you a simple yes/no answer. However, no one has a crystal ball to see into what will happen to interest rates, global affairs, or policy changes in the Canadian government long term. We can, however, share what we do know about past performance and what is happening today. Stay connected to changing market conditions and government policies by signing up to our newsletter.
Neither renting or purchasing a home is inherently a good or bad decision. The importance is that the choice fits with your lifestyle, as well as your plans for the future. Whether to buy or rent should always keep you in a place of stability (nobody needs to be house poor!). Real estate is one vehicle to build wealth and security, and we’re honoured to be a part of your journey. Reach out today for a free consultation! BOOK NOW!
Explore the HelloCondo website offerings to see what condo investment opportunities are available to you. Whether you’re a first time home buyer or someone looking to make a rental property (or several rental properties), think of HelloCondo as your solution to connect you with your ideal property.
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