When should you rent instead of buy?
In more than a few of Canada’s housing markets, making the decision to buy a home is a big one. With prices as high as they are, it has become a massive debate just to decide whether it’s smarter to rent or buy.
Before you buy a home you should consider a number of factors, including your income, lifestyle, family situation, and, of course, where you’re living. Instead of trying to come up with a definitive answer, it’s more important that you learn how to decide for yourself.
Home ownership is not for everyone. Traditionally, we as a society view buying a home as smarter than renting. However, that bit of “common sense” is flawed. Here are some signs that you should rent a home – at least for now:
Higher monthly costs
Home ownership isn’t cheap. It makes sense to try to get a mortgage that keeps the monthly payment similar to the monthly rental cost. However, it’s important to recognize that there’s a lot more than a mortgage to pay when you own a home. These extra costs often make buying more expensive on a monthly basis than renting. If you aren’t carefully prepared, you could end up “house-poor”, scrambling to cover your payments.
While some justify the cost by telling themselves that they’re making a smart investment by building equity instead of paying rent, there are times buying a house doesn’t a better investment than renting and buying stocks. Don’t stretch your budget by buying a home you can’t afford.
No money for a down payment
For most people, not having enough money to cover the down payment on the home they want is enough to keep them renting. In some cases, though, it’s possible to find down payment loan services that can help you get the money you need for a mortgage on a more expensive home.
Borrowing money to borrow more money is a dangerous thing. Some people get free money for a down payment from the Bank of Mom and Dad. Others, though, end up borrowing from lenders, which means more money paid in interest. Unless life necessitates you to own the home you live in, there’s no reason to borrow the money for a down payment. Plan ahead and start saving for a down payment while you’re still young.
If you already classify yourself as “older” and lack money for a down payment, it might be more important to save for retirement than a home. Stick to renting for now so you can secure your future.
You’re looking for a good investment
Housing is seen as a smart investment – mainly because people always need places to live. The reality that people need places to live doesn’t guarantee that housing will perform better than stocks over time. Typically, home values keep pace with inflation, which means you aren’t really making money when you own your residence.
If you want to get into real estate investment, consider that separately from deciding whether to rent or buy. Some owners can make good money buying and selling their homes, but what works for them may not work for you.
Those who often find the most success buying real estate as an investment do it with the intention of renting it. Don’t view the home you live in as an investment.
You aren’t ready to settle down
Some people buy small homes with the idea to sell and upgrade along with future lifestyle. This can work for some people, but not for others. If you aren’t sure you want to live somewhere five years from now, it might be best to hold off on purchasing property until you’re ready to put down roots.
Renting gets a bad rap, but the truth is it’s the best housing solution for many people. Don’t make homeownership a goal just because it’s part of the North American Dream we’ve been sold for so long. Analyze your life and decide if renting is a better option for you.