Should I own or should I rent?  For many years, the answer to this question was almost always the same.  Owning beat renting – hands down. Nowadays, in view of a changing economy and evolving lifestyle preferences, the answer is not so simple.

Leverage Online Calculators

There are numerous factors and variables to take into consideration when deciding between renting and owning. For many of us, deciding to purchase a home will be the biggest investment decision of our life.  From a purely economic point of view, there are online calculators and spreadsheets to help crunch the numbers. But even with helpful tools like these making a decision can be complicated because, in many ways, you are comparing apples to oranges when thinking about owning vs. renting.  The costs associated with owning are more variable and unpredictable, and to a great extent, it all depends on your savings, where you want to live and what changes you think the future holds – both for you and the world. In any event, in inflated real estate markets such as Vancouver, Toronto, San Francisco and Miami, the new math often favours renters. When it’s time to make your own decision as to renting vs buying, plug your own numbers into an online calculator to weigh the options. 

Variable Homeowner Costs vs Fixed Rental Costs

In the meantime, here’s a simple example.  Let’s suppose that you are looking at a house where the monthly cost of homeownership would be $2,500.00/month. That includes principal and interest payments under a mortgage loan, real estate taxes, insurance, homeowner association fees and estimated home repair and maintenance costs.  A similar home in a similar area rents for $2,100.00/month which may not seem like much until you consider the unforeseen costs that can pop up if you’re a traditional homeowner. 

When you’re a renter, you know exactly how much your housing costs are each month until the lease expires, and the landlord may or may not decide to raise the rent. If you’re fortunate enough to reside in a rent-controlled building, count your blessings and consider staying put if you can.  With traditional homeownership, you’re liable for a few expenses that are not always easy to predict. Right out of the box, you will have to pay a substantial sum in closing costs upon purchase of the property. That’s in addition to the down payment, and not inclusive of utility, appliance, or infrastructure costs that can creep-in unexpectedly when things malfunction, flood, or break altogether.

Home repairs – especially unexpected major repairs – are a homeowner’s worst nightmare.  Items like a new roof or furnace cost big bucks and financial experts are constantly advising their homeowner clients to put away 3-5% of a home’s value to cover maintenance, repairs and replacements each year. Of course, that is often easier said than done.  When it’s time to sell your house, there will be more costs: broker’s commissions, fix-up costs and, in some jurisdictions, hefty realty transfer taxes. This is all in addition to any other taxes you might owe upon the sale of a property. Renters, of course, are free and clear from incurring these costs as the onus falls on landlords—traditional homeowners. 

When It’s Better to Buy

Although the tough reality for most young hopeful homeowners in today’s market is that owning will be expensive. But that doesn’t always mean you shouldn’t buy. If by chance when you’re ready to buy there happens to be a dip in mortgage rates and there’s a stable sweet spot in market fluctuations at that time, it may make more fiscal sense over renting if you plan to stay put for a long time. Although markets are guaranteed to fluctuate over the years, you could ride out a few valleys and wait for a satisfying peak if you’re not in any rush to sell. Another bonus of buying when you plan to stay put for a significant period of time is that the longer you own the same dwelling, the cost of your upfront fees become spread out over many years. The New York Times cost calculator mentioned earlier asserts that after 9 or 10 years in one home, your upfront fees become significantly more affordable.

Making a Decision

At the end of the day, as is the case with all investment decisions, the best decision is always the one that makes sense based on your risk tolerance, and your level of savings. Although real estate is certainly one of the most stable investments you can make, it’s still important to consider all the variables and costs that could effect the growth of your investment. If all the stars align, and markets stabilize at the same moment you’ve freed enough liquidity to invest in a home you’re in no rush to leave in the foreseeable future, it may be a good idea to strike while the iron is hot. But if markets are soaring, insurance rates are dicey, and you’re unsure about unloading all of your savings into a single asset, renting is most likely a safer bet.

But don’t forget, there’s always door number 3. Become a co-owner of real property without all the headaches, unforeseen costs, and financial barriers of traditional homeownership, while continuing to rent your own dwelling.

 

Get the best of both worlds: