Depending on who you talk to, renting vs buying (owning) is a hotly debated topic. While many Canadians continue to consider home ownership a goal, almost every homeowner will tell you that the pride of home ownership comes with a significant amount of financial responsibility beyond the upfront costs. These costs can often eat into a good chunk of savings or liquidity you may have enjoyed seeing in your accounts previously. On the other hand, renting offers more mobility but limited control and no opportunity for wealth creation.
To figure out which option is right for you, take into account your lifestyle, budget, future goals, and the real-estate market. To help you have a clearer idea of which option is better for you, here are some benefits and downsides of either owning a home, or renting:
1. Renting provides more flexibility
When you rent your home, you can move more easily (and with less cost). That means you can move to fit your life, not the other way around.
For example, if you have a career change or receive an offer to relocate, you have more freedom and flexibility to move without any fine print to.
2.Renting offers more liquidity
As a renter, your assets will mainly be in your investments. This allows you to focus on building up your wealth and net-worth in a more flexible way. Spreading out your assets between investment accounts such as your Tax-Free Savings Account (TFSA), Registered Retirement Savings Plan (RRSP), or perhaps a Registered Education Savings Plan (RESP) if you have children gives you more ability to withdraw money if need be.
Special consideration comes into play with your RRSP here if you ever plan on making the leap from renting to owning your first property and able to borrow up to $25,000 from your RRSP for a down payment, tax-free.
3. Renting has fewer recurring costs
Renters have far fewer costs to live, when compared to owners. For starters, a renter has less of a tax impact on their financial situation. Things such as property taxes and monthly maintenance responsibilities aren’t a concern. In addition, as a renter you pay less in insurance because the landlord (i.e the owner), is responsible for paying to insure the structure itself. You, on the other hand, are only responsible for insuring the contents of the rental property.
Overall, renters are able to budget their monthly costs in an efficient way as rent is a fixed amount. Not having to worry about unexpected washing machine repairs or leaky roof repair costs is a pretty attractive benefit of renting.
1. You’re not building equity + net worth
While you’re enjoying the flexibility of your renting agreement, you’re paying monthly rent to a landlord who is building equity through home ownership. When it comes to renting, there is no relief later on in life like there is with home ownership. Reverse mortgages, Home Equity Lines of Credit (HELOC) and other mortgage strategies provide support to homeowners as they grow older.
As a renter, it’s likely that your monthly costs will continue to rise with increasing rents, even when you are living on a reduced retirement income.
2. You can be told to leave
When you own your home, you have the power to make the decision of whether or not you move. However, when you’re a renter, that power is in the hands of your landlord. If they decide to move in themselves or sell the property, you can be forced to leave with little notice.
It is important to note that across Canada each province has their own renting laws, so make sure you’re informed as to how many days your landlord is required to give you notice and other important facts.
3. You have less control over what your home looks like
Owning your home is an asset, and making upgrades is often seen as increasing the property value. In turn, it is a decision that benefits not only a homeowners day-to-day life, but their overall net-worth.
When you rent, there are restrictions on what upgrades you’re able to make and how personalized you can make your home. If you do make an agreement with your landlord to make some changes to your home, you unfortunately won’t see a return on investment when you move.
1. Forced savings and net-worth increase from mortgage payments
When you own your home, part of your mortgage payment goes toward the principle of the home. This essentially means that although you’re paying interest on your mortgage, you’re also putting money into your home that will benefit you in the long run.
2. Your home could increase in value
When you own your home, you have more options when it comes to financial planning for your future, such as using your home equity to help fund your retirement. This is especially true when you’re living in an increasing real estate market.
For example, in Toronto in 1985 the average home was $109,094. CBC News reported that in 2018 the average price of a detached home was around $1.3 million. Even with drops in slower markets historically homes usually increase in value over longer periods of time.
3. Stability
When you own – you call the shots. So, if you’re looking for a long-term option to start a family and really plant some roots, there’s no doubt home ownership is your safest bet.
1. You call the shots – and you pay the bills
Owning a home requires you to have a larger emergency fund. Your home is your biggest asset, and your biggest responsibility. If your washing machine breaks or your roof begins to leak, it falls on you to repair the damage.
2. Loss of flexibility
Your mortgage is one of the largest amounts of debt you’ll ever take on in your life – it’s not something to take lightly. It’s important to work with a mortgage broker that won’t let you get tripped up on tricky terms and conditions.
Most horror stories you hear about huge fees for mortgage changes are avoidable, but they are still a risk and downside of homeownership because they do happen.
3. Fees, fees and more fees
Land-transfer tax, real estate agent fees, closing costs, lawyer’s fees,the list goes on and on. Unless you’re truly financially prepared for all the unexpected and expected additional costs, home ownership can really take you for a spin when it comes to fees and costs.
Like many things in life, there’s no one answer for everyone. At Planswell, we believe the answer should always start with building a free financial plan.
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