Financial basis

Rent or buy? Here’s how to decide what’s best for you

Prospective buyers should consider their living situation and long-term goals

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Buy or rent? Simple question, difficult answer.

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Renters brag about the flexibility that comes with not being anchored by a mortgage, and it’s also not their problem when something breaks in the house.

Landlords say renting is like throwing away “dead money”. Why do that, when the mortgage payments will eventually make you the owner of a living asset?

The answer is difficult because it really depends on who is asking. First-time home buyers need to consider what is best for them at their current stage of life.

Real estate is often viewed as a solid long-term investment that creates equity without any capital gains tax implications; for many Canadians, their home is a reliable vehicle for retirement savings.

Buying also offers the prospect of a stable place to live, the freedom to renovate as you see fit, and protection against ‘renovitions’, the practice of evicting tenants to carry out renovations and then selling the property, or to rent it again, at a higher price. the price.

A 2021 study sponsored by real estate company Royal LePage found that landlords were ahead financially compared to long-term tenants in 91% of 278 scenarios analyzed by the report’s author, economist Will Dunning. While total monthly costs of ownership are typically higher than leasing, Dunning found that the net cost was often lower when principal repayment is factored in.

“If you look back, there’s been this huge growth in stock (and) price appreciation,” Dunning said in an interview. “But at the time I did the analysis, you don’t need to make any assumptions about it to justify the purchase, you can justify the purchase just by comparing the monthly costs,” he said. he adds. “If you expect prices to go nowhere at that time, you can still make a home buying decision on a financial basis.”

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Granted, the housing market has changed a lot since 2021. Dunning said if he resumed his analysis with today’s prices, more scenarios would show renters as the winners.

“Homeowners’ very substantial investments in down payments (and in mortgage principal repayments) have an opportunity cost,” Dunning said in the report, using a term from economics which, in this case , refers to the return the money could earn if it was invested in something other than an expensive house. “Based on this, it may be that renting and investing is financially advantageous over owning.”

There comes a certain point when a tenant no longer wants to be a tenant, and it’s not necessarily because they see a house as an investment.

Nasma Ali

There are also costs associated with home ownership that people should be wary of, said Nasma Ali, founder and CEO of One Group Toronto Real Estate. Some of his clients even suffered a loss on their properties when they were forced to sell their condos during the pandemic.

“If you really want to think about what you’re getting in return, take out the interest, take out the property taxes, take out all the repairs you have, closing costs, realtor fees, land transfer tax – c It’s all that extra you have to pay that a tenant doesn’t have to pay,” Ali said.

Ultimately, potential buyers should consider their living situation and long-term goals. For example, for nomadic career people whose jobs require them to move across the country, being attached to a mortgage may not make as much sense as renting.

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On the other hand, if buyers are at a time in their life where they have a stable job and are looking to put down roots in a community, owning is probably the best strategy.

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“There comes a certain point where a tenant doesn’t want to be a tenant anymore, and it’s not necessarily because they view a house as an investment,” Ali said.

For people with enough money for a down payment, Ali advises house hunters to lower their expectations and consider buying the home that doesn’t tick all their boxes. They should also consider restorative properties, “off the beaten path,” she said.

“Everyone is chasing after the brilliant and beautifully staged property,” Ali said. “A lot of our clients, they see bad photos, they don’t even want to go see them. They don’t even give it a chance!

For many Canadians, the desire to own a home goes beyond a financial decision and is very personal.

“You don’t want to be at the mercy of someone else moving and you just want to decide where you want to be for as long as you want and you want to make it your home,” Ali said.

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