Buying a house is a bigger decision that one has to take in life. This decision also requires a lot of thinking to come to a conclusion. Buying a house in Canada is quite expensive, that too if you choose to live in provinces like Ontario. Even purchasing a house in cities like Toronto or Vancouver is considered one of the most expensive purchases. In such cases, renting a house can provide a few benefits. Are you also confused between rent vs. buy? Well, this article is dedicated to you.
Rent vs. Buy
Parents tend to say that buying a house is a must because it provides certain security which renting a house would not provide you. This is not true in many cases; the cost of renting a house is comparatively lower than buying a house.
For example, buying a non-condo home in Toronto would require you to have a $188,499 household income, while a house in Hamilton would require a household income of $144,188. Also saving for a down payment would take a considerable number of years. To buy a non-condo home in Toronto, you will have to save for around 24.08 years, the number is 5.25 years for Hamilton.
Though renting a house is also not throwing away money. In short rent vs. buy depends on your finances, lifestyle, the city you want to live in, and the rent and buying price of the house.
What are the Advantages of Renting a House?
There are certain advantages that you can gain by renting a house I have listed below the terms
in which renting a house would benefit you over buying one.
You Want Flexibility
When you rent a house, it provides you with the flexibility to change it easily compared to buying a house. If you are planning to move out soon or are planning to change the city, it is better that you rent a house than buy one. The lease of houses typically rounds up for 12 months which can provide you with advantages to change it as per your convenience. Also, there will be no financial penalties for selling a house and changing the mortgage which would apply in case you buy one.
It is Less Expensive
It is quite obvious that renting a house is less expensive than buying one because you don’t have to pay maintenance on a house or mortgage payments are also not applicable. All you have to do is pay for rent. If you don’t have the financial stability to pay all the dues of buying a house, it is better that you rent a house.
Less Amount of Maintenance and Struggle
When you buy a house, you also have to look after other expenses such as closing costs, maintenance, mortgage insurance, mortgage installment, etc. But when you rent a house such responsibilities get transferred to the property manager or the owner which reduces your struggle to maintain it.
A Room for Investments
It is a must that you should start investing your money if you want to create wealth. When you buy a house, you get tied up with a lot of expenses and that may not provide you with the ease of money to invest. While when you rent a house you will have savings which you can invest in various financial instruments like stocks, bonds, ETFs, Mutual Funds, and much more.
What are the Advantages of Buying a House?
I have listed the advantages of buying a house below which would provide you with more insights on making your decision.
It Provides You with Stability
When you buy a house, you can call it your own nest – you built it from the scratch and you get the satisfaction of having something on your own. It provides you with the sense of stability that renting a house would not provide you with. There would be no interference from the property owner, you would not have to ask for permission to make any changes in your house, and in any worse situation, you will have a roof over your head.
Advantages of Price Hike
This is one of the biggest advantages that you get when you buy a house. Suppose you buy a house for $500,000 and after 5 years the price increases to $700,000, the gain is yours when you sell it. And generally, property rates tend to rise rather than decrease. It provides you with capital gain and you can use it to your own advantage.
It Can be Cheaper Depending on the Situation
I know that it sounds unfamiliar but in many cases, buying a house is cheaper than renting a house. For example, if you are renting a house for which you have to pay a higher installment. Now consider, you pay the same amount of installment for buying a house. Then it is going to provide you with house equity and you can call the house your own which would not happen in renting. The major forces are where you buy and what the house prices are. Depending on that, buy weighs more in rent vs. buy.
It is an Investment
However costly it is but buying a house is an investment. You save for and plan for it. In most cases, real estate prices tend to increase and that is going to be your return on your investment in the long run.
What Should You Do – Rent vs. Buy?
As mentioned earlier, it is going to depend on your lifestyle and your personal finances. Though you can consider the below points to make a decision.
Stage of Life
This refers to how long you are planning to live in your house and in the same city. If you have researched well, you have a stable job and are going to live there for at least 5 to 10 years then you can consider buying a house. If your work nature requires you to move frequently, buying a house is not going to give you any kind of benefits like renting a house.
These are the costs that you cannot recover in any situation. For example, when you rent a house, the rent that you pay, you will not be able recover. While when you buy a house, there are certain costs like property tax and maintenance cost, which are around 1 percent each on your house value which you cannot recover. Even the cost at which you manage credit is going to be around 3 percent. So the total unrecoverable amount on buying a house would be around 5 percent.
The financial choice makes this decision. If your rent amount is lesser than this 5 percent for the same kind of house, you should choose to rent one. In the opposite condition, buying would be a better choice.
Your Income and Expenses
This is one of the major elements that you should consider before buying or renting a house. Make a budget and decide that you will be able to afford the closing costs, CMHC insurance cost, and monthly installment of the mortgage if you buy a house in addition to paying your regular bills!
If the answer is yes and if you’re looking for stability then you should go for buying a house. But if you think that you would not be able to make these payments on time then it is better that you continue to rent a house for some time and save for a larger down payment or invest your money.