Should You Rent or Buy Your Home

I recently saw a discussion in a local Facebook group that discussed the merits of renting vs buying. Several people weighed in on one side or the other and each thought they had the definitive answer.  While there are compelling arguments to be made on both sides, the final decision is a very personal one and is different for each person. There are three factors that should be considered when making the final choice.

Location, Location, Location

Location is by far the most important factor when it comes to real estate, yet when people have the debate between renting vs buying it is often completely overlooked. They will talk about building equity or the level of commitment that home ownership requires but will completely disregard the idea that location is key. Why would you consider buying a home if the location does not work for you and your family?

• Where do you want to live? There are a lot of considerations that go into that one short question. Some of the things you should consider are:
• What city or town
• What Neighborhood
• Proximity to work
• School district (if you have children)
• Proximity to family and friends
• Other amenities such as, transit systems, public services, shopping, dinning, night life, children’s activities, places of worship, etc.

There is a lot to unpack with this but the bottom line is you need to determine where you can see yourself living before you can make a decision if you should rent or buy.

For example if you are moving to a new city that you aren’t familiar with and don’t know many people it might make sense to rent for a period of time, so you can get a feel for the new city and make sure you really want to be there before you make the commitment to buy.

Life Style Considerations

Next you need to consider where you are in your life and how this might impact your decision. These are the factors that are often cited in the debate of renting vs buying. Are you willing and capable of maintaining a home and completing repairs?

I remember when I bought my first home, I had no idea that home ownership would be so much extra work. All the sudden I was responsible for snow removal, lawn care, gardening. In addition to the maintenance I had several projects that I wanted to take on to make the house “mine”.

Fortunately, I had family and friends who had experience with home improvement projects, and I managed to figure out, painting, changing light fixtures, replacing doors, laying ceramic tile and eventually finishing the entire basement before I sold the house.

The point here is that home ownership does require a certain life style and even if you move into a house that is “move in ready” there is regular maintenance that is required. Here are some of the lifestyle considerations you should consider:

The common benefits cited for renting are that you have flexibility of where you live as it is easier to relocate at the end of your leases. You have no responsibility for repairs to your home and few items for maintenance as things like snow removal, lawn care and general upkeep are normally the responsibility of the landlord.  

On the flip side you have no say over the finishes used in your home. Your landlord may decide to sell or terminate your lease for another reason leaving you having to relocated even if you don’t want to.  The big one on the cons list for renting is that you don’t have any ownership interest in your home and thus your rent is paying someone else’s mortgage.

The advocates for home ownership will cite many of the opposite arguments, that home ownership allows for security in having a home that is your own and you can control if you want to move. Additionally, there is the wealth creation aspect of home ownership where the home owner can increase wealth through the appreciation in the value of the home and through the forced savings that are achieved by paying down the principle balance owing on the mortgage with each payment. 

The downside of home ownership is the additional time and money that are required to maintain the home and make both routine and capital repairs to the property as they become necessary.  Another con to home ownership is the lack of flexibility, as you would have to either sell your home or make arrangements for it to be looked after at a minimum or rented to someone else if you wanted to relocate.

Affordability

Here is where most people who want to buy a home get frustrated and feel like they can’t get ahead.  With housing prices continuing to go higher and higher many potential first time home buyers feel as though no matter how much they save the market keeps moving the goal line, in the form of a minimum down payment, farther away. 

How do you get ahead in this market? You need to have a plan and recruit some professional help.  The three people that can be the most help to you here are your REALTOR®, a mortgage professional and a financial planner. 

There are 4 steps in establishing if you can afford to own your home.

Step 1 – Know you finances

Establishing a budget and savings plan are key to buying a home. Know where you are with your savings and then look at your spending and determine how you will be able to save more to achieve this goal.

Step 2 – Know what you can afford

Contact a mortgage professional and they can complete the pre-approval process for a mortgage.  This will allow you to know how much money the bank will allow you to borrow to buy a home. Remember just because you can borrow a certain amount of money, this doesn’t mean that you need to borrow the full amount of money you are approved for.

Step 3 – Know the cost of buying a home

Now that you know the price of a home that you would like to buy you can plan for all the costs associated with buying a home, it’s more than just a down payment. You should contact your real estate professional who can help you estimate the cost and timing of your deposit, home inspection, land transfer tax etc.

Step 4 – The cost of home ownership

You have the money all saved up to make the purchase one last thing to consider is the ongoing cost of home ownership. The cost to own a home is higher then to rent and there are more costs then just the mortgage payment, know the costs before you commit to buying.

In addition to these steps you should talk to a financial planner to make sure you know about the different options for saving for a down payment. There are also some incentives that are available to first time home buyers and other programs that may be available to you to assist with the purchase of your home.

The decision to rent or buy is a very personal one. While I believe that home ownership can play an important part in your financial plan it isn’t for everyone. If you have determined that home ownership is right for you, I would be happy to connect to discuss in more detail the steps involved and how to make your dream a reality.