To Rent or To Buy?

In your lifetime, buying your own home will probably be the largest investment you ever make. It is likely to be the biggest purchase of your life, so before you decide to go through with it, you need to decide if now is the right time for you to buy. One of the first things you must consider is whether buying or renting is a better choice. In the current economic climate, it will be better for some people to wait to make a home purchase. On the other side, with a falling real estate market, now is the right time to buy for some. Either way, it is important to take some time and weigh the pros and cons of both renting and buying.

For many, owning a home is always seen as advantageous to renting, no matter what. Owning a home is an investment, thus it must be the correct choice. This may be true for some, but depending on your situation, this may not be the most important factor in making your decision. There are many other factors to take into consideration when you are choosing between renting and buying, and the common argument that “renting is just throwing money away” is only one of them.

Before you even begin your property search, you have to answer a few basic questions. The most obvious, and important, is whether you can actually afford to buy and live in your location of choice. Besides answering this question of cost, you also must look at how long you want to live there, how much the property will appreciate in that time and any tax benefits or incentives to owning over renting. Specifically, you should look at the following advantages, and disadvantages, of owning and renting.

Advantages of Owning (Disadvantages of Renting)

  • The equity of a property typically builds over the long term. As such, if you own your home, your investment should grow. If you rent, the landlord for the property reaps any benefits of property equity increases.
  • Homeowner incentives are often offered by many municipalities, particularly for first-time homeowners. There are no such incentives for renting.
  • Depending on your mortgage, your payments are often fixed for a certain length of time. Plus as you make payments, you should be decreasing the amount you owe, so they could go down with re-mortgaging. On the flip side, rent usually increases each year by a fixed percentage, depending on where you live. So, even if you are a great tenant, you will keep paying higher rent rates over time.
  • You can personalize and decorate your own home to make it your own. If you are renting, there is little or no option for decorating the place where you live.
  • There can be significant tax advantages if you own your home. If you rent, the landlord also reaps these rewards.

Advantages of Renting (Disadvantages of Owning)

  • Depending on where you want to live and current interest rates, etc., rent payments may be significantly less than mortgage payments, allowing you to live in nicer location than if you were to buy.
  • When you rent, you often have to pay a small deposit to guarantee the rental agreement. When you are buying, there is a significant outlay of money necessary during the buying process. Besides a down payment (often 5 or 10% of the agreed purchase price), there are taxes and fees to also be paid.
  • Maintenance, taxes and expenses are taken care of by the landlord when you rent a property. Some may be included in your rent, but it is usually a fraction of the amount. If you own your home, you are responsible for taking care of it, repairing it and paying all fees related to running it.
  • You have increased mobility when you rent, as it is much easier to move. Often you only have to give a month or two’s notice of your intent to leave. The process of selling a home is much more involved and time consuming. Also, to make a profit with a home, you need to stay long enough to ensure the property value has appreciated above your purchase price plus the taxes and fees you had to pay to buy.

Of course, for each person, each of these factors will have a different weight when making a decision one way or the other. It may come down to pure numbers for some with the more economically feasible choice will make the decision. Other more intangible aspects may be more important to others when making this decision. The ability to move at will or to decorate and renovate when you choose, as you choose often play a large role in this decision.

In the end, if you do decide to buy, it is very important that you understand your monetary situation and what options you have for borrowing. Before you begin on your property search, visiting a mortgage advisor can provide advice on current market conditions, interest rates and what level and type of mortgage you will be approved for. Thoroughly understanding your situation will save you the heartache of finding the perfect home, whether to rent or to buy, and not being able to afford it.

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