It’s no secret that real estate in most parts of Canada have skyrocketed in recent years. Between immigration, the pandemic and a growing population (millennials are becoming the biggest demographic and they are having children), demand for housing, and particularly single-family homes has soared. At the same time, more and more people are opting to rent because buying is out of reach in the areas where they want to live. Investors are cashing in the trends as well.
But is it always better to buy? Let’s take an in-depth look at the situation.
The Pros of Renting:
1. Leasing permits more flexibility
As a renter, you also have limited responsibility. The best question I ask my clients to ask themselves is, “Do I intend to still be here in 4 or 5 years?”
2. You’re able to live in an area that suits your needs
Ask yourself, “Am I better off buying in a location that isn’t suited to my needs, or should I opt for a better area by renting?”
3. Moving out is much easier as a tenant.
Especially when my clients are responsible for monthly property repayments, I’ve found that some anxiety is inherent in finding a new tenant.
Even if you wouldn’t rent out your property, ask yourself, “Am I ready to take the risk of buying a property where monthly property repayments might be a challenging issue down the line?”
4. You only need to insure what’s yours.
Tenants only require contents insurance, while the homeowner is responsible for both maintenance work and homeowner insurance.
Take into account all the other pros we’ve discussed in our analysis because insurance costs and maintenance might be the straw that breaks the camel’s back here.
5. Extra cash to invest
Are you able to beat the returns that come with property ownership? If so, it could be better to deploy the more significant amounts of excess cash in your savings account into a business idea you already have or the stock market.
The Pros of Buying
1. Securing your place in the property market
There’s no doubt about it: owning a property is a safeguard against the ravages of inflation. Many of my clients fear the market might price them out of affordability. Holding property in a stable, safe, and secure area is often the best reason to take out a mortgage or consider doing so.
At the same time, I always advise my clients not to make decisions based on fear alone, as such decisions can result in mistakes. Each prospective buyer has their own set of financial duties and considerations, which they should carefully assess.
2. Value appreciation
My clients rely on my experience in the market to advise them on property that will appreciate enough to cover their monthly property repayments and result in a significant profit if they decide to sell.
Property flipping is a great reason to enter the housing market, and some areas remain resilient in value appreciation, even during a downturn. Buying in the pre-construction is only one aspect of finding an edge in the market.
3. Freedom to alter the property
Any changes you wish to make to a property are, to a lesser or greater degree, your prerogative. This situation allows you to improve the property’s value by degrees, enabling you to buy property in an excellent location, mainly if it’s small or run-down.
Prospective renovation and extension are great substitutes for hefty monthly home repayments on a larger, perfectly-maintained property.
4. The ability to lease the property
Leasing out a property is not for everyone. Still, today’s gig economy allows you flexibility in renting out a property for office space or as an Air B&B, so don’t let the idea of long-term rental agreements dissuade you from making this decision.
5. Saving on rental
Owning property means setting aside money that would otherwise go toward rent. If you’re paying the same amount in rent that you’d spend on monthly home repayments, you’re essentially throwing money away.
Which is better for you?
No hard and fast rules apply to everyone’s needs in the rental and property markets. I always advise my clients to make a cost-to-benefit analysis. Ask yourself where your decision to rent or buy will lead you 8 or even 15 years into the future. Few emotions are more powerful than regret, but you also shouldn’t be driven by a fear of missing out.
Especially if you’re renting a property, it becomes essential to take a long-term view. Renting is often the equivalent of throwing money away; money that could have gone into a home repayments. With that said, not every person’s career and business requirements are the same. There are specific cases where renting can be a boon to you and those affected by your decision to rent.
For instance, you might have access to a better area, better schooling, and a better career. However, these are specific cases, and on balance, it’s usually only better to rent with a view to buying a property of your own in the future.
In the case that you’re forced by necessity into renting, it becomes necessary to consider the following three aspects of the rental:
The base rent term of the rental agreement
This is the minimum rent you’ll pay to your landlord, excluding added expenses like utility bills.
The rent term
This is the length of the lease agreement. You might receive a better rate if you’re leasing for the long term, but I always advise my clients to weigh this better deal against the potential minimum mortgage they could pay.
The rent escalation
Quite often, affordable rent in a high-status area or area of high value to you masks the fact that rent is bound to increase. Weigh this up too when you decide whether paying the potential mortgage is better or sticking to paying monthly rent is better.
There is no right answer to whether it is better to buy or rent a property. It all depends on your personal circumstances and what you are looking for in a residential property. Both options have their advantages and disadvantages. You might not be able to afford the mortgage repayments in the area of your choice. If operating in the right location is a necessity for your lifestyle or business, renting might even turn out to be more profitable for you.
If you are looking for stability and a place to call your own, then buying a property is the better option. However, if you are not ready to commit to a long-term purchase, that’s okay too. There is nothing wrong with having a more flexible relationship with the property from which you live or operate. Above all, I always tell my clients never to operate from a position of excessive greed or fear. Even if renting comes with the anxiety of losing a permanent place in the property market, you can still thrive by reinvesting your savings somewhere else.