Never have so many Canadians today faced such a tough question in “Should I Rent or Buy?” It’s the million dollar question but I’m not going to make it any easier on you because the answer to the question really is – it depends. There are a number of questions we can ask ourselves to determine and narrow down the grey areas here and provide you some clarity for your own situation.
Should I buy a property?
The fact of the matter is that we are just coming off of the greatest housing boom in the history of the world. This is no small statement. Many fortunes have been made over the last decade in the western world by buying property. But what now? First let’s look at the three reasons why you would buy a property:
- To use as a primary residence – this is the main reason to purchase property for the majority of Canadians. We occupy the home for our own use and derive value from using it as our family’s shelter.
- To gain capital growth – the last 10 years have been a wonderful time to rise with the tide of increasing property values. This is market driven not something you can control personally per se.
- To gain income potential – this is where purchasing property to rent it out or to supplement the payment by renting out a portion to another party. With mortgage interest rates at historical lows and up until two years ago having loose mortgage qualification requirements; anyone could qualify to buy a home causing your tenant pool to be quite poor – making this not a popular reason to purchase.
Now what the person who is looking to buy needs to consider is what is changing in today’s property market and how this will affect them. The only reason I would advise a client to buy property today would be if they were looking to hold it for the long-term as their principle residence. The reason here is that your family may be forced to sell at a loss due to a change in the economy.
Capital growth in most regional markets is flat with a high level of uncertainty. This means if you are looking to purchase as a way to play the market appreciation lottery – don’t. Direct investment in income property is only advisable for the full-time investor who has made it their business to know their regional market inside and out and has a strategy in place for the movements of the market.
Should I rent a property?
There are increasingly appealing reasons to rent today. I believe with today’s changing demographics as well as a much more mobile and informed population – it will become even more popular still. Here are the main reasons why someone would rent a property:
- Lower cost of living – outside of a very few rental markets (Toronto/Vancouver) where landlords can charge premiums because of a shortage of well located quality rentals – it has been shown that the cost of living is lower when you rent vs. buying.
- Ease of movement – with Canada’s economic focus shifting West – it is easier to take advantage of employment opportunities when renting as real estate is a non liquid asset and takes time to move. By the time your home sells – that job opportunity is gone to the next guy.
- Opportunities to invest – not owning a property is never an excuse to not invest. Money will be made in real estate in Canada regardless of the overall economy. The money you save from the reduced cost of living can be invested in other asset backed investments that yield healthy returns.
I have to interject here a personal story as my family has recently experienced a move like this. We saw the top of the Canadian real estate market coming two years ago and decided to sell our home where we realized a six figure return after expenses. We decided to rent in our new found city of Barrie, Ontario because we did not know where we wanted to settle down as of yet. The more research I did on the change in the property market – the more I was convinced that it was not time to buy.
While we considered our next move – a 2,600 sq. ft. – 30 acre ranch came up for a long-term lease for less than market rent for our area. Now looking back I believe this was one of the best moves we have made as our realized capital gain on the sale of our primary residence is reinvested making great returns as we enjoy a superior quality of life.
The debate over “Should I Buy or Rent” is not going away anytime soon. The considerations are very personal. The consequences of making the choice lightly can be severe. As long as you are purchasing property for the purpose of long-term residency then I believe you will benefit from today’s low mortgage interest rates. If you foresee any changes in your near future (3-5 years) then finding a rental property (and continuing to search for a better one) is the more advantageous option.
Before I moved to Canada I was a single homeowner who was living in the second home that I had bought before the age of 24. I bought my first home at the age of 21 because I didn’t want to pay rent to someone else, but money and me became friends from an early age.
We decided to rent vs buy before we purchased our first home as a married couple for many of the reasons that Mike has pointed out. We became the nosey neighbours sellers dread but with good intentions.
We went to many open houses in the GTA (Greater Toronto Area) during the short period that we rented an apartment. We did this in order to learn more about the housing market in Canada and what to expect.
During the time that we were renting we saved enough money for a downpayment so we would not have to pay the CHMC fees. There really was no rush for us but we thought we would do it the right way then look back and wished we had made other decisions.
It was one of the best decisions we ever made. It helped us to get a kick-start on paying down our mortgage. In 2013 we will be mortgage free, just 4 years after buying our home. Taking the time to budget our money in order to save, research properties and rates to make informed decisions really did help guide us in the right direction.
Make decisions that fit in your budget but research your options before jumping in. Answering all of life’s million dollar questions takes patience so don’t rush to keep up with your friends and neighbours. Buying a home vs renting is a big step, make the right step that works for you.
Thanks Mike for Sharing your rent or buy story with us today!
Contribution Post By: I am a passionate educator about mortgage and finance. I also am an investor in asset backed and real estate based investments. My wife and three boys live with me on a 30 acre horse farm up in Barrie, Ontario where we enjoy all four seasons. Find me at Mortgage Truth.
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