To rent or to buy- this is a classic question that everyone will contemplate at one point or another in their lives. The correct answer is not always obvious and it can even change depending on the current economic conditions and your geographical location. Choosing where you will live and how you will pay for that mandatory expense will be one of the biggest emotional and financial decisions that you will make in your lifetime. Although it is a complex problem, if you break it down to it’s fundamental elements, the choice that is best for your unique situation becomes much more evident.
The Basic Elements: Renting a Home
If you are looking to rent a home, condo or apartment, there are many things that you must consider. All the details will have to be analyzed and neogotiated but those are not the basic elements of renting a living space. The basic elements are:
- You will pay a predetermined “rent” to a landlord who owns or manages the property
- You live in the agreed upon space for a set amount of time (typically 12 months at a time)
- You cannot drastically alter the space without permission
- If major complications occur naturally, they are taken care of by the landlord
Now let’s take a closer look at these basic elements of renting. A rental fee must be paid, usually monthly, which normally is a larger sum than the average monthly mortgage payment. Why would someone pay more per month to live somewhere? Well, when you enter into a rental agreement, you do not have to pay a down payment, which is advantageous if you have not yet had time to put some savings aside.
By renting a space, you are committing to a location but only for a short amount of time. When you purchase a home, you will likely live there for at least a few years before considering selling but when you rent a home or apartment, you can easily move to a brand new location when your lease agreement has expired. There are some that value this flexibility, so they opt to pay more in the short term.
Renters gain some flexibility with the ability to easy re-locate but they do lose some flexibility when it comes to altering their living space. The majority of landlords will allow for a little decoration but set restrictions in place that prohibit renters from making major changes or participating in certain activities such as smoking or entertaining guests for lengthy amounts of time.
And what about major complications? Renters will not be responsible for these issues for the most part as it is the landlord’s responsibility to keep the property in working order. An example could involve a furnace that breaks down. A renter would not have to pay any money out of pocket to have this issue fixed, where a homeowner would have to foot the entire technician bill, however, the renter does not control when and how the furnace is fixed. The homeowner, who technically owns the furnace, can have their unit fixed the next day keeping their family warm, while a renter waits for a lazy landlord to call a technician which could take days.
The Basic Elements: Buying a Home
Making the decision to purchase a home can be a little unnerving but if you have the right team at your side, it can also be one of the most exciting processes of your life. Purchasing your own home is also a fantastic way to build your personal net-worth and create a valuable future asset for your children or retirement. The basic elements involved in buying your home include:
- Paying a “down-payment” and also paying a mortgage, usually on a monthly basis (unless you have the assets to purchase the home outright)
- You can live in your home as long as you like
- As the homeowner, you are responsible for maintaining and fixing the structure
- You may alter and decorate the home in any way you see fit
- You may also use your home to create income or to support hobbies
So let’s analyze the elements of buying. When you decide to invest in a property, you will have to put a portion of the total purchasing price down in a lump sum payment. You then pay for the rest of your home with a monthly mortgage payment that will be required until the full sum has been paid off. When some potential home buyers consider this particular element, they can become frightened by the total financial commitment. Keep in mind that your mortgage payments will likely be less than what you would pay in rental fees per month for a similar home. It is also important to remember that every dollar you put towards your home is an investment for your future as the value of your home will go up over time.
More Flexibility, More Responsibility
When you own a home, it’s not just a structure to store your belongings and use for shelter, it becomes an extension of your family and your life. It is the location where memories will be made and can be completely customized to all your wants and desires. Make an African themed room, install a hot tub, put in a pool to make the hot summer days more enjoyable. Whatever you want to do, you can make it a reality.
With flexibility comes responsibility. When you own a home you will have to make sure it is fully maintained. There will be grass that needs to be cut, snow that must be shovelled and appliances to be repaired. If the air conditioning breaks down in the middle of July, you will not have a landlord to call to fix the issue, you will have to orchestrate the solution on your own.
Financial Gains in Homeownership
Real estate is one of the safest long-term investments you can make. Yes, there have been dips in the market. They have happened periodically in the past 100 years and they will continue to happen in the foreseeable future. Just like the stock market, the real estate market will go through ebbs and flows but if you look at the long-term results, the trend is always positive. The average price of a Canadian home in 1984 was $71,351 and by 2016 the average price of a Canadian home was $442,264.
Another way to earn income from the home you have purchased is renting it out to tenants. Depending on your unique situation, you can either rent out a portion of your home or the entire space to paying tenants and use those funds to pay for your mortgage while also gaining some extra funds to spend however you see fit.
Benefits to Both
After looking at the elements of both renting and buying, it is clear that there are benefits to both options. If you are looking for a quick solution to your housing needs and don’t mind paying a higher fee per month, renting could be the best fit for your current lifestyle.
If you are looking to find a property to really call your own and you wish to invest in your future, it might be time to start your search for your dream home.