Arguably one of the most prevalent questions that each one of us has, or currently is, contemplating is the question of whether to rent or buy our living space. This question holds true as well to individuals who think they don’t have a choice in the matter because buying may not seem to be an option for them. To those people, perhaps the question is more “should I begin planning to purchase a home or not” and what are the variables associated with each side of the coin. In today’s world, there are strong proponents to each side of this argument, with the possibility of generational differences attributing to the discussion.
If you were to ask any baby boomer (born 1944-1964) what the correct decision is, they will almost undoubtedly state that buying a house is the smarter decision. On the other hand, ask any Gen Z (born 1995-2015) what the best decision is and they will likely say renting (perhaps attributed to the fact that they haven’t’ been faced with the dilemma but also because being grounded is becoming less and less enticing to the younger generations). Let’s analyze each option to see what the pros and cons are to perhaps enlighten us as to what will fit our lifestyle.
Before determining the benefits and setbacks of renting, let’s understand that renting an apartment, condo and house each are associated with different costs. Renting an apartment is the least expensive form of renting as all your costs are essentially a combination of your rent and utilities (Hydro). There are no property taxes that you are responsible for and when appliances break, your landlord will generally be the one who will fix it, with no cost to you. This is the cheapest form of renting.
Renting a condo is slightly different than renting an apartment, namely due to the extra costs that come along with your condo fees, which as a renter, you are responsible for. Some landlords incorporate this fee into your rent while others split it, but you are still responsible for the payment. This is generally a more expensive option than renting an apartment. Renting a house is by far the most expensive option in this context. In addition to your basic monthly rent, you are responsible for the property tax, all utilities such as water and electricity, and basic house care such as lawn care, etc.
The obvious benefit of renting, whether an apartment condo or house, is that you do not need to come up with a lump sum of money in order to rent. Generally, you are responsible for first and last months rent and your monthly expenses are extremely low allowing you to live with other extra qualities of life, such as vacations, shopping, etc. However, the most prevalent downside of renting is that all your money is essentially going to waste, building zero equity into any form of real estate for your future.
In contrast to renting, buying a property gives you the opportunity to invest your money into your own real estate via building equity into a property that you can cash out on one day in the future. The benefits of buying, aside from building equity, is that there is no landlord that you need to answer to, and you have the choice to do whatever you want with your property. However, there are a few downsides that must be considered. First, the real estate market is by no means risk-free and the value of real estate today may not be the same value in a year from now. There is quite a bit of speculation that a recession is almost inevitable and if this were to be the case, the value of real estate would plummet drastically. In fact, according to a recent article published by CTV based on research conducted by Bloomberg Economics, housing prices in Canada are not sustainable and are rising much faster relative to how much people are earning or paying for rent. The results put Canada at the top of the list, alongside New Zealand, of countries that are most at risk of a housing bubble. This should not be taken lightly when you are thinking about buying property.
In addition to the risk of buying property, there is the issue of coming up with enough funds for an available down payment as well the monthly expenses which are now solely your burden to bear.
Before making any final decisions on whether to buy or rent, sit down with your financial advisor to see what the smartest decision is for you in your situation. Understand the pros and cons of each option and decide what your risk levels are and what your quality of life is. However, if you find yourself in a situation where you need to extra cash to fix up your home or need to come up with your first and last months rent, find a reputable lender like Magical Credit Inc. which offers loans up to $20,000 as simply as 1-2-3. Having access to quick funds may be just what you need and the convenience of applying for their loans could not be any simpler.
By Kimberly MacDonald, Financial Advisor