What is the meaning of life? Destiny or free will? Happiness or growth? Rent or buy?
Okay, that last one may not be one of life’s big philosophical questions, but it is one of the more important financial decisions you’ll make in your lifetime. And while owning your own home was once the ultimate dream for many Canadians, home ownership has been modestly yet steadily declining as more young Canadians opt to rent. In fact, just half of millennials at the average age of 30 own their own homes versus 55 percent of baby boomers at that same age in the early 1980s.
To help you answer the "rent or buy" question, we’ve highlighted three benefits of both below. Ultimately, it comes down to your personal lifestyle and financial situation—because what one person may consider a positive, another may consider a negative.
1. It's an investment with equity
Real estate is one of the safest investments you can make, and unlike an intangible stock, owning a home is an investment that you actually live inside of—this gives many people a sense of security. Plus, renting is simply helping someone else make their mortgage payments; when you buy, you’re paying off your own mortgage. And as you make payments, you’re building equity. Equity offers financial freedom in that you can borrow against it in order to make home improvements, pay for your child’s education, cover medical expenses, or even start your own business.2. You can make it your own—and save money
Unless your home is part of a deed-restricted community that may impose rules you must abide by, your home is your castle and you can do with it as you please. Need some shade? Grow that Maple! Wasted space in the garage? Make it a man cave! Daughter going through a Goth phase? Give her that black paint for her room! And that’s just landscaping and aesthetics. Buying a home also allows you to make upgrades that can save you money. For example, you can make energy-efficient improvements like adding insulation in your attic or upgrading your heating system; or go green with upgrades like installing programmable thermostats or solar panelling. Many of the improvements you make can also increase the value of your home, providing a handsome profit if and when you do decide to sell.
3. It gives you a source of pride and privacy
Remember how proud you were when you finally paid off that car or truck and could finally claim it as your own? Now multiply that sense of accomplishment by 100! Of course you’ll likely be borrowing for many years, but once you own that home, even if it’s just a small starter or a little studio, it can be a great feeling! For many, it’s the opportunity to say, “I’ve made it—I have arrived!” Owning also offers you complete privacy. No longer do you have to worry about a nosy homeowner or landlord checking up on you and making demands.
1. It gives you freedom and flexibility
Selling a home takes time and money, which can make it inconvenient to move. (And making some homeowners feel trapped.) But as a renter, moving is just a matter of giving some notice, packing up, and hitting the road. This flexibility makes it easier to take advantage of new or better job opportunities, whether it’s across town, in a different province, or even a different country. In addition, while a job loss can be devastating for anyone, it’s generally more palatable for a renter as their job search isn’t confined to one area; they’re “free to move about the country” so to speak. This freedom also factors in when it comes to living near work in a metropolitan area, often a top priority for younger people. While they likely could not afford to purchase a place in the city, they can often find a comfortable, safe place to rent. It may have a high rent, but it’s doable, unlike buying.
2. It’s hands-off and hassle-free
You’ve got the DIYers who love to work around the house, in the garage, or in the garden. And then you have those people (myself included) who don’t want to be bothered or are too busy to be bothered. For them, renting is a convenience. If the plumbing backs up, call the landlord; if the roof is leaking, call the landlord; and if an appliance needs to be replaced—you guessed it—call the landlord. Of course, some landlords aren’t always the most responsive people on the planet, which is another factor to consider.
3. It allows you to diversify your investments
Owning a home is generally a great long-term investment, but between mortgage payments, property taxes, repairs and renovations, and any applicable association fees, it can also take up a lot of a person’s net worth, tying up their wealth in one single asset. And if there’s an economic slump, a disaster, or zoning laws negatively impact you, your net worth takes a hit. As a renter, you’re likely to have more money on hand in the short-term to diversify your portfolio of investments, including stocks, bonds, international opportunities, and real estate investment trusts.
Like many of life’s big decisions, there’s no one answer that’s right for everyone. As we’ve demonstrated, this can be especially true when it comes to deciding whether to rent or to buy. There are a whole host of factors, including your current financial situation, future financial goals, lifestyle, career, children, age, and much more. Be sure to weigh each option carefully, and you’re certain to arrive at the decision that’s best for you!
Our blog is all about how to spend smart while still getting the most out of life.
Every week we release the latest news and info on a wide range of money management and debt topics, everything from rising interest rates and costs to saving for a downpayment, retirement or your next vacay. Our blog is all about how to spend smart while still getting the most out of life.