Everybody comes to a certain age where they have to make a big decision. Should I rent or buy a house? Well, 63% of Canadian families currently own their homes, but are they missing out?
There are many pros and cons of both renting a home and owning one, and depending on your financial situation and needs, only one will be the right option for you!
Let's talk about one of the biggest decisions you'll make in your life; whether you should rent or buy a house.
Why I Should Buy A House
There are plenty of reasons to buy a house. Whether it's privacy, independence, or a nest egg for the future, buying a house will give you what you want. There's a reason over 550,000 homes were sold last year in Canada, and let's talk about the pros and cons of joining that club!
Advantages of Owning
The biggest advantage of owning by far is having your name on the property. Owning in and of itself is a huge reward. Not only do you not have someone telling you what pets you can't have, where you can store your stuff, or anything else, but you have almost total control over what goes on.
This leads to total independence over your decisions with the property, which is a freedom many people wouldn't trade for the world. Because of this, you have the option to use your property wisely, and the opportunities for this are endless. Even if you buy a $300,000 house and you want $1 million for retirement, your home might be able to get you there.
If you keep it in good shape, your house will be a cash cow when your retirement age comes.
Even making a few alterations or renovations could easily yield you an extra $200,000 if you know what you're doing. Adding solar panels, remodeling the kitchen or bathroom, changing the siding, doing some landscaping, and a bunch of simple DIY projects can easily add up to more money in your pockets.
Not only can you sell it for more, but you can rent it! When you turn 65 and your pension starts rolling in, you're going to want more. If you want to retire, you'll need more income. Selling your house could give you a huge payout, but if you live longer than you expected, what's the plan?
If you rent it out, you're ensuring long-term, stable, predictable income to carry you through retirement. Is your home two floors? You can even convert it into a multi-unit house for maximum rent. That could be the difference between $2000 and $3000 a month.
Disadvantages of Owning
The disadvantages of owning a house are real and also quite simple. Yes, an advantage is everything being on you and in your control, but the counter to that is everything is your responsibility.
There are so many costly damages that a home can undertake at any given moment. The more you have, the more you can break. Water heaters, furnaces, oil tanks, wells, sump pumps, and so much more.
Now, with the right insurance, this won't be as much of a problem. If you're covered for disasters like floods or fires, then that's a huge load off your mind. However, there are still big expenses related to appliances or the building that you aren't covered for. It's something you have to be aware of.
Making sure you can afford the mortgage is half the battle, but you aren't done after that. Be certain that you will always have enough saved up for these emergency expenses. Having a few thousand dollars saved up for emergencies will be the best financial decision you ever make.
Tips for Owners
While most people buy homes for independence, homeownership still means you have to follow rules. Don't get us wrong, there are more rules to follow when renting, so this doesn't make it a bigger disadvantage of the two.
However, if you live in a homeowners' association or a town with strict building regulations, there are still rules you are expected to follow. If you don't, the cost of fixing those violations will be on you. That is just something to be aware of.
Why I Should Rent A House
Renting a house has some serious pros and cons, just like homeownership. It may not come with the same level of independence, but that varies from place to place. It also gives you a stable, predictable cost of living. Let's talk about that.
Advantages of Renting
The biggest advantage of renting a home is the lack of responsibility. Sure, you have to pay rent, and you may have to worry about your security deposit, but that's not too bad considering all the responsibilities that come with the building you're living in.
If the stairs break, that $2,000 expense isn't on you. If the water heater breaks, you don't have to pay $1,000 to replace it. Sure, your landlord will give you directions on your responsibilities, and they'll vary from building to building, but it's definitely less than homeownership.
Regardless of your circumstances, if you rent, you probably don't have to mow the lawn, trim any bushes, or do any general property upkeep. This makes it a pretty good option if you don't ever want to pay $10,000 for a new roof installation.
If you live in a single-unit home, then you still get the benefit of having a private living space without all of the responsibilities.
Now, there's an old saying that "the bank doesn't think I can afford a $900 mortgage, so I pay $1500 for rent instead," and there is some validity to this saying. However, without these random expenses, with renter's insurance being a lot more affordable, and without having to maintain the property, the costs do balance out.
Disadvantages of Renting
One of the strongest disadvantages of renting is the lack of leverage and control over the property. Your landlord will have a lot of say in what you can and can't do.
The other is the lack of financial mobility. There isn't an end-goal in sight. You are throwing your money into someone else's mortgage or retirement fund, and not your own.
This doesn't mean you have a total inability to build wealth, it just means it's a little more difficult.
If your rent is under 30% of your income, you should be able to put it a little bit away, and your employer retirement fund might help with that. However, it doesn't compare to the ability of that same money going toward an end product of totally owning your home once a mortgage is paid off.
If you live in a multi-unit house, then we don't have to tell you the disadvantages. Loud or annoying neighbours can make your living experience a nightmare. Even if you're in a single unit, if you aren't allowed to build a fence or do anything to remedy the situation, this will still be the case.
Tips for Renters
Before renting, you should know how much to spend on rent. You don't want to be putting anything over 30% of your total income down on rent under any circumstances. If you can get that number down to 25%, then that's even better.
Make sure you know what amenities and rules are before signing any lease. Read your lease agreement in full, understand what your goals are, and make sure it fits in with them. You don't want to be trapped for a year.
Rent vs Buy a Home? The Answer is...
In the battle between rent vs buy, the winner, like most big decisions in your life, depends on your needs and on your present financial situation.
YES: If you are sure you can afford a mortgage, make a downpayment, and maintain or increase the property value, then it's an excellent investment that can carry you through retirement.
NO: If interest rates are through the roof, you don't have the money for a downpayment, you need that money for something else, don't have the time for upkeep, or if you don't want the responsibility of taking care of your property, then maybe renting is right for you.
Build Your Financial Future
When you're deciding to rent or buy a home, you're making a huge financial decision that will have consequences that span a big part of your lifetime. There's also a supposed hybrid between renting and owning, known as rent-to-own.
Regardless of whether you own your home, or you're renting, obtaining the right kind of insurance is critical. Protect yourself and your family. Connect with Insurdinary today. We look forward to being able to answer all of your questions.