You’ve probably heard debates and varying opinions on the topic of whether it’s a better
idea long-term to buy a home instead of renting. There isn’t a clear-cut answer to which is the better option, as the pros and cons are reflective of several factors that will vary from person to person. Buying a home offers some obvious advantages, but there are cases where renting is the better financial decision.
One reason renting can be a better choice than buying is that rent is usually less than a
mortgage plus property taxes, maintenance costs etc., and the savings can be invested into higher yielding stocks. However, this assumes that one has the discipline to put the entirety of their
money saved into investments, which can be difficult to have the discipline to commit to. Real
estate historically appreciates at a 3-5% rate, while also providing you a place to live and the
peace of mind that comes with it along with your investment gains from your home. As buying a
home is often a long-term commitment, having your home as an investment that grows over time
and is largely immune from the swings of the stock market can act like a “compulsory savings
account” with modest but consistent returns.
For those who do not have the means to afford all of the costs that come with home
ownership, from the initial down payment to property taxes along with maintenance costs that can
be unexpected and expensive, renting is a financially safer option. If anything breaks or needs to
be renovated in your unit, it is the landlord’s responsibility to repair and fix these issues. This
makes it easier and more predictable to budget around the set cost of rent per month rather than
have to budget for unforeseen expenses.
Another reason one may choose to rent is the flexibility of mobility renting provides. If
you are uncertain where you will be living or working in the next 5 years, the commitment of
owning a home may be cumbersome. Buying a home is an extensive and sometimes stressful
process, so if you are considering relocation in the near future, renting is less burdensome on
your finances as well as the time and effort required to search for a home and find one you wish
to purchase. It is often a much easier and quicker process to legally vacate a rental unit than it is
to buy and sell a home, with Ontario law only requiring 60 days notice to a landlord to terminate
a lease with no contingencies.
That being said, there are several valuable advantages to owning a home long-term.
Home ownership allows you to build equity during the course of your mortgage, and this equity
can be leveraged into HELOCs and other forms of investment that can be used for maintenance
costs, additional properties or other investments. This option is not available to a renter, as their
hypothetical investments cannot be leveraged into a HELOC.
If you are looking to settle into an area and relocation is not a consideration of yours, the
stability that home ownership provides cannot be overstated. While renting offsets the
responsibility of maintenance to your landlord, it also allows your landlord the freedom to
unexpectedly decide to sell the property or have a family member move into the property.
Owning your home makes it your decision whether and when you want to stay in your current
home for 30 years or sell after 5 years. With rent controls being removed for properties built after
2018, if you are living in a property where this applies, your landlord can legally raise your rent
every 12 months to any amount they wish with no repercussions.
While renting allows more freedom for relocation, for those looking to settle into their
forever home, home ownership allows more freedom to make changes to your property without
having to ask for a landlord’s permission. If you belong to a HOA, there may be some
restrictions on what you can alter, but generally, it is in your control in regard to upgrading or
renovating your home as you desire.
There are intangible reasons why buying a home can be a better option, namely the
feelings of accomplishment and pride that often come with home ownership. If buying your
home has been a goal of yours, it feels very rewarding to achieve that goal. With renting, the
property isn’t yours and therefore the sense of ownership and control is absent. Buying a home as
a long-term asset can also bring piece of mind when considering inheritances, as it provides a
safe and valuable investment for your children which renting does not.
As every potential home buyer has a unique financial and lifestyle situation, there is no
“right” answer to the question of whether it is better to rent or buy. While renting has advantages
for those on a fixed budget or who are prone to relocation, buying a home is generally the better
option long term for those who are in a financial position to absorb any unexpected costs that
come with home ownership, and for families who are looking to settle down long-term in a
neighbourhood with good schools and public amenities for their children.
If you are a renter who is considering entering the real estate market in search of a home,
it can be helpful to use a mortgage calculator to get an estimate of what a house in your price
range and with current interest rates would be based on different amortization periods and
compare with your current rental rates to help guide your decision. Using our mortgage
calculator, you can see for yourself if home ownership is a good choice for your long-term goals.