Vs. Buying Renting Your First Home: Pros and Cons
First Home: Pros Renting Vs. Buying Your and Cons
For many Canadians, owning a home is one of their life’s biggest aspirations. For several people, owning a home is not just about buying a place where their family can live. Homeownership marks a significant financial milestone in their lives because a home is considered a store of value. At least, this used to be the view of most Canadians.
But things are changing. In recent years – especially among Millennials – there is a growing reluctance to buy a home. A great number of the younger generations don’t see homeownership as the sound financial investment their parents thought it to be. Even when they can afford to buy their own home, many deliberately opt to rent instead.
Perhaps you are thinking of buying a home but weighing the benefits of doing that against the benefits of renting. Should you buy your home or rent one? There are many factors to consider when answering that question. The weight of each factor will vary for every person. In this article, we outline the pros and cons of owning a home versus renting it.
Pros and cons of renting your home
• Lower upfront cost and less paperwork: Compared to buying a home, you don’t need too much money to rent. There is very little paperwork involved when you are renting. Renting allows you to divert the money you would have used as a down payment on a property into other investments.
• Predictable monthly spending: As a renter, you know your monthly housing cost. You only need to pay the rent while the landlord handles maintenance, insurance and other costs. The cost of fixing unexpected problems in the home is not an issue when renting.
• The freedom to move: For many people, the biggest reason to rent their home is the flexibility renting gives them. As a renter, you can live in upscale neighbourhoods where you normally couldn’t afford to buy a home. You also have the liberty to move whenever you want to.
• Less room for customization: Renters don’t have a lot of room to customize their rented homes. If you don’t like how the home is designed – flooring, paint colours, etc. – there’s not much you can do. You have to find a way to make the most of the landlord’s design.
• Risk of rent increase: Although the government tries to stop sudden rent increases by landlords, you don’t have control over this issue. The landlord may raise the rent beyond what you can afford. The owner may also sell the home, forcing you to move.
• No long-term return on investment: As a renter, you will be helping the landlord pay off the mortgage on their property. Yet you will not get any long-term returns on the money you invest in that property. You do not have any equity in the home you live in.
Pros and cons of owning your home
• Greater financial and social stability: Homeownership correlates positively to prosperity because people who own their homes can make better financial decisions. The ability to plan many years into the future often gives them an edge over people who are renting.
• The chance to build equity: The equity a homeowner has in their home can serve as a source of capital to finance a business, buy a rental property or fund an investment. This equity comes from the initial down payment on the property and the monthly mortgage payments.
• More control over your life: Homeownership gives you control over more aspects of your life. You can customize your home to satisfy your style preferences. You get to choose the kind of schools your kids attend, and you decide when you want to sell your home.
• High upfront costs: The huge cost of homeownership is a big problem. It can take years to save up enough money to make the down payment on a home. But even after you buy the home, economic events can wipe out the home’s value, hurting your investment.
• Not free to move: Buying a home impedes your ability to move at short notice. If you no longer like the area or have better opportunities elsewhere, you cannot simply pack up and leave. You have to sell or lease out the home; that can take time.
• Monthly costs are unpredictable: On top of the initial down payment on the home and monthly mortgage payments, you also have to maintain the property. As a homeowner, it is not always possible to tell how much you will spend on your home monthly because emergencies can happen.
So, should you rent or buy your home?
The decision you make on this issue can mark a positive or negative turning point in your life. That is why you don’t want to base your decision on short-term considerations. While it is true that only you fully understand your current reality and future plans, it never hurts to get the opinion of an experienced Real Estate professional on this matter.