THE PROS AND CONS OF OWNING VERSUS RENTING
Many people are unsure whether they should rent or buy their home. There are several issues to consider, financial and non financial. Each situation is unique and requires individual evaluation. Overall, home ownership wins out the in quality of life side, in terms of stability, pride and community involvement. I'm going to give you the pros and cons of both.
OWNING PROS
Low borrowing costs: Over the last decade, mortgage interest rates have significantly declined. As a result, many people have been able to purchase a home and make mortgage payments that are lower than the rent they would normally pay.
Ease of purchase: Homes can now be purchased with 100% financing, longer ammortization periods, flexible repayment plans and government programs such as Land Transfer Tax Rebates. Also there are many first time buyers plans.
Equity accumulation: Homeowners typically build equity, even if it seems the principal is not going down fast enough. Over time the equity accumulated by rising values can be much higher than the mortgage amount. More people have created wealth this way, than any other investment.
Inflation hedge: Housing prices typically follow the economic cycle and as a result, real estate has traditionally been an excellent hedge against inflation over the long term. For the past 50 years, annual price appreciation has averaged plus 2% while inflation has averaged minus 1%. Inflation also causes the inflation-adjusted amount of the mortgage payments to be reduced over time.
Tax free gains upon sale: As a principal residence, capital gains made on the sale of the home are tax free.
Significantly reduced future living expenses: Once mortgages are paid off, montly living costs drop dramatically. Even if paid down only a third, the option of being able to refinance back to the longer ammortization, will free up your mortgage payment by a third. Again a significantly reduced cost of living.
OWNING CONS
Ongoing costs: There are always additional expenses that must be paid on a continual basis, such as property taxes. In addition, utility and insurance bills, as well as maintenance and repair costs, tend to be higher for homeowners than for renters.
Inconvenience of moving: It's usually more difficult and expensive for homeowners to move on short notice such as a job transfer, marriage breakup etc. Having to sell quickly, may mean having to accept a lower selling price than desired.
Volatility: While housing prices always rise over the long term, short-term volatility is not unusual. Annual increases and decreases have been experienced, being savy enough to recognize it as a short term " blip", and waiting it out is necessary.
RENTING PROS
Monthly savings: Renters can apply monthly savings - any excess over their rental payments that homeowners would pay in mortgage payments, plus maintenance and other costs associated with home ownership - towards other financial goals, such as investments and retirement. However, as this requires a high level of financial discipline, it can also be seen as a disadvantage.
Renting flexibilities. Renters who need the freedom to relocate frequently due to job or lifestyle, need not enter into a long term lease. They can be short 6 or 3 month leases or even a month to month agreement. The only expenses incurred are moving expenses and utility hook ups. Also this allows them to just " try out " a new neighbourhood without any commitment.
Care-free living: Although renters sometimes have difficulty obtaining timely maintenance form their landlords, it is usually free through a phone call. In addition, most renters save money and time, which homeowners might spend on landscaping, decorating, repairs and other maintenance.
RENTING CONS
Lack of stability: If landlords do not extend leases, or decide to sell, it may be hard on families to find an alternative residence and change location , especially on short notice. This is quite a common frustration.
Quality of Buildings and neighbourhoods. Buildings and neighbourhoods with high rates of rental occupancy, may be less attractive due to the transient nature of residents.
Increasing rental costs: Unlike a mortgage payment, rent typically increases at the same rate as inflation, rental costs rarely decline, this may especially hurt retirees and other individuals on a fixed income.
The decision to rent or buy is ultimately your's alone, I hope some of this information is helpful, I'm here to work for you, if I can help, don't hesitate to call.
Nick Del Monte 604-461-2844