What to Weigh When Renting Vs Buying

It’s rare that a person leaves the comfort of their childhood home and buys a property. Most of us spend a time in that transition period as a renter, before purchasing a home. The average age of first time home owners is now 37 according to a UK study by Money Supermarket. Our parents bought their first home when they were much younger.

While there could be many explanations for this shift in age in first time home buyers, the amount of pros and cons that need to be considered when buying a house are most certainly a factor. As a result many young couples and professionals are choosing to save-up, take less risk and rent for a longer period of time. At the same time, when we rent till we’re nearly 40, we’ve maybe taken too long to start building something of our own. Major investments take time to pay off and starting that late, can lead to financial pitfalls down the road (ie. You’re trying to retire while still paying off your mortgage). Let’s take a look at the pros and cons of renting vs buying.

Committing to a Community

Remember “location, location, location,” as the mantra for first time business owners? Well this is true for first time home-buyers too. You’re making a commitment to that location, so make sure you’re happy with it. Just like a blossoming business, you can be successful based on the selection of a good location.

When you’re renting a house or an apartment, typically you honor your agreement to dwell there by signing a lease that acts as a temporary contract to occupy the rental unit for the time agreed upon. If you want to leave before that lease ends, you’ll have to sublet to another tenant and in some rare cases you actually terminate your lease early. While there are a few responsibilities with this type of trade-off in addition to some forms and paperwork, this is a small price to pay to move out.

Image by Ian Sane via Flickr

Compare this to owning and selling a home in the case that opportunity calls. You can’t just walk away and the consequences of being tied down could make or break your next move. Unless you’re sure you’ll stay in the area you currently live in for a long time, don’t buy there. We’re all familiar with the theory that we change careers on average 7-9 times during our life. Whether or not this is accurate, the point is that we don’t know when opportunity will appear. Be it an educational opportunity, a family matter or work related, you don’t want to deal with having to upgrade and sell a house amongst times of great transition. The freedom and flexibility of renting a home means that you can say yes to that California internship on a whim.

Don’t commit to a community until you know you’re there for the long haul.

Considering Cost Savings

Buying your first house may be the most expensive purchase you’ve ever made up until that point in your life, so you have to get it right or rent until you do. Renters are banking on short-term savings and hopefully putting them away for future investments. Buyers are paying off long-term investments, while trying to protect and maintain it through additional investments, meaning there isn’t much room to save. Indeed there are factors to balance in this equation, upfront and initial investments vs long term responsibilities and payouts.

For many this equation is meaningless because they are just not in a position to buy. Who can blame them after considering down payment, mortgage broker, notary fee, paying a house inspector, moving fees, home insurance, school taxes and property taxes. All of this is assuming there are no renovations to make.

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Image by Nick Bastian via Flickr

Yet sometimes, the reason for renting is due to that location itself. A friend of mine has been renting in Toronto for years now because the buyers’ market is just unrealistic there. As the second most expensive city in Canada to live in, Toronto is unaffordable for most middle-income families to buy a house or condo in. According to Reader’s Digest, buying a house in Toronto is on average close to half a million dollars. This is true for other cities, and more commonly these are the places where young-professionals who are renting become middle-aged professionals who are renting. Sometimes renting is a person’s only option if they’re tied to an opportunity in a city that is expensive to buy in.

More Maintenance

When you’re renting an apartment it doesn’t matter if it’s not perfect since the rental unit is only temporary. There are of course certain upgrades you can make to your apartment but since you don’t own the property, these investments are worthless in the long run. In some cases, renting restricts your ability to personalize your dwelling. Landlords may prevent you from painting or putting holes in the wall, limiting what you can do to upgrade your sanctuary.

If you have the same experience while buying a house, at least you can renovate the house to get as close to perfect as possible. The investments you make in renovating your house are retained in the property since you own it. Everything you invest in renovating is adding to the total property value. Owning a house isn’t all just upgrades and additions though, sometimes it means fixing an unforeseen area that needs repairs and it also means having the capital for these fixes. When it comes to replacing a roof or repairing the leaking foundation of a home, owners have to be prepared to spend sometimes tens of thousands of dollars.

Image by Tom Page via Flickr

Renters don’t carry the responsibility of major repairs. If a pipe bursts, they can call their landlord and expect to have whatever the problem is, fixed within a reasonable amount of time.   Indeed the strongest benefit of renting instead of buying is being free of major and out-of-scope repair costs. Yet at the same time, this also means renters are dependent on someone else to complete home repairs. In some cases the landlord takes an unacceptable amount of time and rental disputes form out of landlords not completing the renovation requests of their tenant.

Weighing it all Out

Renters who are considering making the transition towards buying a house need to weigh carefully the pros and cons of their decision. Committing to a community permanently can be a mistake if you are not well established there or young in your career. Beyond that, owning a house is a huge financial responsibility that is in some cases just unattainable due to that area’s high market value. When you are ready to buy a house, you have to be prepared to take on new financial responsibilities, beyond your monthly mortgage payments. This coupled with an unforeseen and major repair can lead to financial ruin. With all this in mind, it is sometimes wise to keep renting until you’re really ready…and I mean really ready.

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