Renting or buying a home?

Renting or buying a home? Saying that renting is unquestionably a waste of money or that buying a house is necessarily more advantageous are popular myths that do not take all situations into account. Several factors must be evaluated to determine whether it is better to rent or buy a house.

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SUMMARY

Advantages and disadvantages of buying a house
Advantages and disadvantages of renting
Renting or buying a home: elements to evaluate
Preparing for the purchase of a property
If you plan to remain a tenant
Tools to assess your situation

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The main advantages and disadvantages of buying a house

Advantages	Disadvantages
The property belongs to you, so you can make it your own as you wish. This is a long-term investment. At the end of the amortization of your mortgage, you will no longer have any monthly payments to pay. You benefit from a certain financial security and you are building an estate.	A property comes with several costs. It can also come with surprise costs related to breakage or unforeseen renovations. You may face an interest rate hike that increases monthly payments. You are responsible for all maintenance of the property.

The main advantages and disadvantages of renting

Advantages	Disadvantages
Leasing provides peace of mind regarding maintenance, repairs and costs as they are the responsibility of the landlord. The only amounts to be paid are fixed and foreseeable: rent, electricity and hot water, Internet. On a comparable basis, a rent is generally lower than a monthly mortgage payment. A lease does not require a long-term commitment.	The money you pay in rent does not come back to you; rather it helps the landlord pay his mortgage. You do not have the flexibility to renovate the place or adapt it entirely to your taste. There is always a risk that your landlord will increase your rent or decide not to renew your lease.

Renting or buying a house: elements to evaluate

How do you know if buying a property is the best option for you? Several elements will influence your decision to rent or buy, so ask yourself the right questions.

1. Your plans for the future

Where do you see yourself in 5 years? Do you plan to have children? Do you plan to move in two years? Will your situation change? These are important questions to ask yourself in order to determine not only if buying is a good solution, but also what type of property to consider.

Consider your current needs as much as your future needs to ensure that your decision will still be right for you 5 years from now.

2. Your financial capabilities

The purchase of a property generates many significant costs, the main one being the down payment. The latter corresponds to an amount of 5% to 20% of the value of the property, which represents a significant sum to which must be added the notary's fees, inspection costs, transfer duties, etc.

Before embarking on the purchase process, you must apply for a mortgage pre-approval to determine the maximum mortgage amount you qualify for.

Then you have to consider the costs inherent in maintaining a property, which can go up to 3% of the value of the property annually.

In other potential costs, it is highly recommended to keep a financial cushion for unexpected costs.

3. Are you ready to commit to this big project?

Buying a property is a long-term commitment: the property belongs to you and you have full responsibility for it.
Being a homeowner does not only mean being able to pay all the associated costs. There is also a question of responsibilities and maintenance. Even a carefully maintained home is not entirely weatherproof.

4. The situation of the real estate market

Staying up to date on the evolution of the market and interest rates allows you to better position yourself.

As 2020 and 2021 show, heavy market activity leads to higher property prices. You need to understand whether you are in a buyer's or seller's market in order to adjust accordingly. On the other hand, a rise in mortgage rates translates into higher payments, as is the case in 2022 compared to previous years.

By having a good understanding of the market, you will be able to make an informed decision based on the context: wait for the market to calm down or plan your budget based on a potential rate hike, for example.

Some tips

You are the best person to know whether renting an apartment or buying a house is better for you.

Before making a decision, it is essential to be well informed about everything involved in buying and maintaining a property. In the same vein, with a good knowledge of the real estate market, you will better understand the context in which you are buying, will be able to ask the right questions and will have better results in your searches.

Prepare yourself for the purchase of a property

Particularly when property prices and rates are high, it can be advantageous to rent a home for a few years in order to be well prepared for the purchase of your first property. You can take advantage of this to raise a more attractive sum for your down payment and other associated costs.

The idea is to make a budget and practice saving in order to be equipped to take on the financial burden of a property.

If you plan to remain a tenant

Becoming a homeowner is not an obligation. Some people decide to stay as tenants for multiple reasons: lower costs, peace of mind regarding costs and unforeseen events, no long-term commitment, etc.

In this case, you must put money aside for your future (your retirement for example). Learn how to manage your money effectively to build financial worth.

Tools to assess your situation

There are several free tools to help you assess your situation and determine whether it is better to rent or buy a house.

• Calculator of the Autorité des marchés financiers
• Canada Mortgage and Housing Corporation Affordability Calculator

Are you ready to buy a property? Or do you have questions? Sutton brokers are real estate experts and will be happy to assist you in your efforts.