The strong property values of the post-Covid era have consistently called into question whether young people are better to save and buy their own home, or divert their attention from real estate aspirations and become lifetime renters.
In Canada, the tide is finally turning in favour of climbing the property ladder.
Lower interest rates and flat markets are encouraging first-time buyers to make their move.
They now make up more than 30% of the total buying market, and that’s great news because the idea of being “lifetime renters” is enough to fill most people with dread.
Perhaps that last sentiment alone is enough to show you where we sit in this debate. Below, we step through the pros and cons of buying and renting so you can take an informed view. Remember, deciding which path to take depends on your financial goals, lifestyle and how long you plan to stay in one place.
Ownership – Pros:
Build equity – Every mortgage payment acts as forced savings. Over time, you pay down the principal and benefit from the appreciation of the property’s value, increasing your net worth.
Stability – With a fixed-rate mortgage, your principal and interest stay the same, protecting you from rising costs, which would be reflected in the rental market.
Lifestyle control – Owners have the freedom to renovate and are more likely to find single-family homes in specific areas that are rarely available for rent.
Capital gain – Historically, there have not been many years when values have retreated. Generally, you should expect to make a capital gain from your property over, say, a seven-year period.
Cons:
Upfront costs – Buying requires a significant down payment and closing costs.
Recurring costs – Depending on the style of property you own, you’ll have a number of recurring costs, such as council rates, home insurance and, in the case of an apartment or townhouse, strata or body corporate fees.
Maintenance commitment – In a house, you’re responsible for all repairs and that can be several thousand dollars each year, depending on the quality of the home you’ve purchased. For those in apartments, you’re covered by the body corporate fees.
Market risk – There are moments, albeit rare ones, when values slide because of an economic correction – think GFC. Don’t assume owning a property gives you a right to make a profit from it.
Less flexibility – Selling a home is a slow, expensive process, making it difficult to move quickly for a job or lifestyle change.
Renting – Pros:
Lower costs – Generally speaking, rents are cheaper than mortgages, but that’s not always the case.
No maintenance – Renters don’t pay for the upkeep of their property. However, maintenance is one of the most common sources of dispute with a landlord.
On the move – Renters can move easily at the end of a lease. However, a common scenario is one in which a renter wants to stay but landlords move them on so they can demand higher rents from new tenants.
Investment opportunity – By not tying up a large sum in a down payment, renters can invest that capital in the stock market, which may offer higher returns. You can lose on the stock market, too.
Cons:
Lack of certainty – A landlord can refuse to renew your lease. With that hanging over your head, you can never call a rented property “your” home.
No equity growth – Monthly rent payments provide shelter but do not build an asset or personal wealth.
Rising costs – Renters are vulnerable to end-of-lease price hikes. Since 2020, rents have surged.
Lack of control – Renters cannot customize or renovate their space and are subject to the rules of a landlord or management company.