Owning vs. Renting

For many renters owning a home is a life-long goal. It's also an important lifestyle and investment decision. Have you have ever wondered whether you would be further owning rather than renting, you're not alone.

As a short term option, renting almost always outpaces buying because buying costs such as transfer taxes, legal fees, and closing costs take time to recover. If you are in a situation that requires you to move in the near future or on a frequent basis, renting offers greater flexibility by allowing you to pick up and move with just a month or two notice.

But renters can also expect to pay rents that will move upward at roughly the rate of inflation, so their costs for accommodation never really decrease. Moreover, renters can't ever recover any portion of their monthly housing costs; once in the landlord's hands, rent paid can never be recovered.

In contrast, when buying a home, the equity, or value of the home minus the debt owed, increases with each monthly mortgage payment made. This means that over time your equity grows until you own your home. Over the long run, more and more of your monthly payments become recoverable since the payments are actually paying down the principal. A long term decision to own also provides you with the opportunity to recover improvement and maintenance costs. For instance, homeowners who maintain their home by ensuring it is in good repair or remodel will often see an increase in sales price when it comes time to sell.

What if the economy is in a decline when I want to buy a home? Renting can be an option in a poor local economy and when interest rates are high. But in an improving economy (like Vancouver's) where prices have shown little movement and mortgage rates are at historically low levels, owning a home is a sensible option. The real estate market moves in cycles and, while prices do fluctuate, over the long run, housing prices have always increased.

Home ownership is a personal and sometimes emotional decision but it can also be a profitable one. When making a choice whether to rent or buy your home, consider this rule of thumb: if you plan on living in your home long enough for price appreciation to cover buying and selling costs, owning is a better alternative to renting.