The Rent vs Buy Debate

Much to everyone’s disappointment I have been considering buying a condo (though a cheap condo that I can live in until I find my prince charming who will sweep me off my feet and buy a large home to house me- KIDDING).  A small condo that I can rent out easily in case the common-law or marriage relationship (or whatever) that I am in falls through.  Throughout the terrible heartbreak ordeal I learned that it is important as a woman to be financially secure (not that I wasn’t), but I can imagine what it must be like for a woman who may not earn as much (or more) than her partner.

I guess it goes back to my post about financially independent women.  I think it’s important, but that’s just my opinion.

So, enough blabbing.

Let’s go back to the rent versus buy debate.

Rent-vs-Buy-DebateNow, I know that most people out there will talk about how if you invest the difference into the stock market at a 8% return (really who gets an 8% return these days at a sustained pace?), then renting beats buying any day.

I know that some people would do anything to be a homeowner, and some people would rather sit in a VW beetle full of clowns before they buy a home because they are diehard renters.

So considering the balanced, objective approach, I sought to find some rent versus buy calculators and found some great ones that are objective and practical, including most important factors that can tip the scales one way or another.

When Renting, Considerations Are:

  • Utilities- Are these included with the tenancy agreement?  Hot water? Gas? Electric heat? Cable and internet (sometimes these can be included if you live in a garden or basement suite).  How much does the average utility bill cost?  You don’t want to be faced with big surprises later on.
  • Flexibility- Will you be required to sign a one year lease?  Is your landlord okay with subletting if something happens?  What happens after the one year?
  • Rent increases- Although this might not affect you if you move around, consider whether your landlord will implement rent increases.  You can easily check out the allowable max rent increase annually from your local tenancy branch.  Of course, usually these are on par with general inflation costs.
  • Pets- If you have a beloved dog or cat, unfortunately that seriously limits your options out there.  Most landlords aren’t fans of your furry friend even if they are unbelievably well behaved.
  • What You Will Do With the Money You Could have Used for a Down Payment-

When Buying, Considerations Are:

  • Your Down Payment- How big is your down payment?  A larger down payment means smaller monthly cost.  Also, are you willing to “put all your eggs in one basket” so to speak?
  • Potential Growth- Location location location is key.  I know no one has a crystal ball, but can you envision the place you are purchasing to have potential growth as an investment?  If not, what’s the point of buying?  Isn’t the reason most people buy to make money off of real estate?
  • Expenses- Home ownership adds up- big time.  Property taxes, property transfer taxes, legal fees, real estate commissions (when you sell, there will be inevitable real estate commission), maintenance fees, home insurance.  Generally, selling costs can add about 5% to your total purchase price when the time comes for you to sell.
  • Flexibility- Will you be able to rent it out?  Do you think it will sell easily if push comes to shove (although no one can predict the market, you still need to think about this question).  Are there rental restrictions?

Try to be Objective instead of making an Emotional Decision

Oftentimes we can’t help it.  Deciding whether or not to buy a home can be an emotional decision.  However, before you let your emotions and dreams of fireside chat with friends, barbeque parties on the balcony, and your decorating ideas run wild, think about using a rent versus buy calculator before you make your decision.

The rent versus buy calculator shared by the Globe and Mail is great because it helps you break down the projected costs of both renting and buying and compares them side by side.  It also tells you how long you have to be a homeowner before selling in order to make buying a home more worthwhile than renting.

Readers, did you use a rent versus buy calculator before you made the decision to buy?

About

Young is a writer and former owner of Young and Thrifty and the main "twitter' behind Young and Thrifty's twitter account. She lives in Vancouver, BC and enjoys long walks on the beach, spending time with her anxious dog, and finding good deals. If you like what you read, consider signing up for email updates.

11 Responses to The Rent vs Buy Debate

  1. When I bought my first home, it was less expensive than my rent. I think there could be a third choice! Keep renting and buy a house to rent out. It is almost like having a business. It is definitely an investment that will pay off better than the stock market particularly in a volatile stock market.

  2. In Canada, there’s no doubt. Renting is smarter in *almost* every market. The MSM in Canada has a reason to pump housing — hence calculators like the one shared above. I don’t blame them, the Banksters and governments are their biggest advertisers after all. But when housing price to rent ratios are at never-before-seen highs, and prices are clearly in bubble territory, any calculator that says “buy” is slanted to add some illogical input to a decision that should, as you note, be rational.

  3. In all honesty, renting for life never entered the picture for me so I never used one of the rent vs. buy calculators. Renting was something I did until I could afford a place of my own. I do wish I had done a few things differently when I bought my first place, but I had rentals in which I wish I had done things differently as well. I don’t regret home ownership in the least. If I went back to renting it would honestly be a short term position for me.

  4. Buying vs. renting isn’t just a financial consideration, but if we are just looking at finances alone, it really depends on the market you’re in. I think buying a home is almost always an emotional decision, but sometimes that’s a good thing. If you can afford it, that is.

  5. There seems to be MANY things missing in this calculator.
    1- I don’t see CMHC insurance in there.
    2- Tenant insurance is MUCH cheaper than Owner insurance.
    3- I ceertainly hope you don’t use 3% yearly increase for the value of the home, especially in Vancouver.. try negative numbers at least.

    I have made my own little calculator where you can play with the numbers but most importantly, where you can see the formulas and tweak… like if you actually do not have a down payment and are borrowing it from parents.

    I can’T post it from work, will post this evening.

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