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To Rent or To Buy – Which one is for you?

by admin on July 22, 2015

Today, many Canadians face the challenge of whether to rent or buy a house. Although there is no direct answer, there are the advantages and disadvantages of each situation.

RENTING

Advantages:

No Maintenance Fees: If your heating, air conditioner, or any of your appliances break down, you can call the landlord because it is not your responsibility (no maintenance fees).

Flexibility: When renting a home, there is no long term commitment. You can move out at the end of the term, whether it is a monthly or annual contract. It’s that simple. No Return on Investment: While renting a home, you cannot build equity. You are only living in the house, paying rent to someone else with no return on an investment.

Avoid Depreciating Value: You are able to avoid depreciating home values as there are no guarantees that purchasing a house will appreciate in value over time. Rental Payment Fluctuations: As home values rise, homeowners / landlords may increase your rent. This does not always occur, but there is the risk that your monthly payments may increase.

Leftover Income: There are no property payments, utility payments, renovation costs, or maintenance costs. It’s simply a much lower
monthly payment to rent.

Disadvantages:

Landlord Restrictions: As a tenant, you must ask permission from your landlord if you wish to make any renovations. If machines break down, you have to wait for the landlord to fix it; you have no control over these items.

No Return on Investment: While renting a home, you cannot build equity. You are only living in the house, paying rent to someone else with no return on an investment.

Rental Payment Fluctuations: As home values rise, homeowners / landlords may increase your rent. This does not always occur, but there is the risk that your monthly payments may increase.

BUYING

Advantages:

Inflation: Over time, a house usually appreciates in value and as a result you are building equity. With your monthly mortgage payments, you have a principal reduction on your mortgage and at the same time the value of your investment is increasing yearly (depending on the market). Risk of Vacancy: When buying a home for rental purposes, there may be times when tenants move out and you have to find new tenants. This will leave you covering your monthly mortgage payments and other bills.

No Restrictions of a Landlord: You are able to decorate and have control of your property. Risk of Depreciation: Although your house may appreciate in value, it has a risk to depreciate in value as market conditions fluctuate.

Ability to Generate Income by Rent: If you decide to rent your house, your tenant(s) are ultimately paying for your monthly expenses; such as your mortgage payment, utilities, and property tax payments while your investment grows in value and mortgage amount owing is declining. Additional Costs: A homeowner is normally responsible for many other costs, such as taxes, maintenance, insurance and variable rates. It is not guaranteed that a homeowner only has their monthly property expense payments.

A Diverse Portfolio: Purchasing a house means Illiquid: Tangible assets tend to be illiquid. A house owning a tangible asset. When you have different assets included in your portfolio, you may be able to take out larger bank loans or reduce loss in other investments. is not always easy to sell. If you need to sell your house immediately, it may not happen instantly (depending on the market / area) but you may have equity in the house to enable you to do an ETO (Equity Take-out) to get quick cash until you sell.

Disadvantages:

Risk of Vacancy: When buying a home for rental purposes, there may be times when tenants move out and you have to find new tenants. This will leave you covering your monthly mortgage payments and other bills.

Risk of Depreciation: Although your house may appreciate in value, it has a risk to depreciate in value as market conditions fluctuate.

Additional Costs: A homeowner is normally responsible for many other costs, such as taxes, maintenance, insurance and variable rates. It is not guaranteed that a homeowner only has their monthly property expense payments.

Illiquid: Tangible assets tend to be illiquid. A house is not always easy to sell. If you need to sell your house immediately, it may not happen instantly (depending on the market / area) but you may have equity in the house to enable you to do an ETO (Equity Take-out) to get quick cash until you sell.

By: Jasmine Lai

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