Rent or Buy? How To Know What's Right For You | Refresh Financial
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Rent or Buy? How To Know What’s Right For You

Rent or Buy
With housing costs being as high as they are, many Canadians find themselves debating whether it makes sense to rent or buy. It’s a reasonable question to ask, so let’s take a look at the possible solutions.

Affordability

- For many, the question of renting or buying comes down to affordability. Is it financially viable to purchase a home in the city you live in?

Let’s say you do some basic preliminary calculations (and it’s important to include CMHC premiums, property taxes and maintenance costs in these calculations) and you discover that this number brings you right to the edge of your budget, leaving you with very little financial margin. In this instance, it might be wise to consider renting until you experience an increase in your income.

When it comes to home ownership, many Canadians tend to push the limits on what they can actually afford, putting their financial stability at risk. Remember, timing can be everything when it comes to purchasing a home, and patience can pay off in dividends.

Appreciation and Equity

Now, let’s talk about a scenario in which the costs of either avenue (renting or buying) are relatively the same. How do we determine which option makes more sense? Fortunately, there is a method of breaking the tie. We’re going to look at appreciation and equity. As a home owner, you’re actually in the process of building your overall net worth. This isn’t the case with renting.

Freedom

- In some cases, a renter who has the financial means to purchase a home may decide against it, in order to maintain a level of freedom which renting affords. A home owner is largely tied to their new asset. The process of moving is time-consuming and arduous. However, a renter has a measure of freedom which allows much greater flexibility in terms of residency or travel. Give your required notice, pack your stuff and away you go!

Suitability

-It can definitely be a challenge when it comes to finding your dream home. Maybe you’re looking for a yard or space where you can set up a workshop. Maybe there’s an ideal location you’re after or a specific number of bathrooms. When it comes to making a decision as significant and weighty as purchasing a home, having to compromise isn’t ideal.

Deciding to rent for the time being, while keeping a lookout for a home that meets your needs is definitely preferable to living with buyer’s remorse.

Down payment

-The initial cost of owning your own home is substantial, and it’s one of the first hurdles a homeowner faces. Maybe you don’t currently have the capital to afford a down payment. In British Columbia, first-time homebuyers have the option of borrowing interest-free. Although a great opportunity to break into a tough housing market, having the second debt on top of your mortgage can be a slippery slope to financial stress.

It’s usually better to wait until you have saved enough to make the minimum down payment. But keep in mind that if your down payment is less than 20%, you’ll be responsible for covering the CMHC fees.

Investment

- An alternative to purchasing a home would be to invest your capital in alternative markets. Let your money work for you as you bide your time, waiting for your ideal house to present itself. Variables aside, it’s possible for you to earn a larger return on your investment than what a rising housing market could do for you.

Make a Decision!

Ultimately, whether you should rent or buy is a decision that rests with you. Remember to always be honest with yourself and the reality of your financial situation. Stay objective, and make an effort to keep yourself from making emotionally-charged decisions. As mentioned above, good things come to those who wait.

What are your thoughts? Do you think renting is a better way to go, or are you in the home-ownership camp? Let us know in the comments!

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