Honestly, I hate being asked the question: “Is it better to buy a home or rent indefinitely?”
The reason I dislike the question is because my answer is almost always: “It depends.”
Contrary to popular belief, renting doesn't mean you are throwing money away or making your landlord richer at your expense. Nor does buying a home guarantee you wealth creation.
However, I will acknowledge that it does seem like having a mortgage is a right of passage into adulthood and there is still a belief buying a home is the more financially sound decision.
However, there are no guarantees.
Housing prices could fall and erode your wealth while renting costs may be stable and manageable while you invest discretionary money in the markets for wealth creation.
With renting, you know your costs and have the flexibility to relocate with relative ease. Home ownership includes the mortgage cost, a known cost for sure. However, the wildcards and expenses can add up if the roof leaks, the pipes burst or the furnace breaks down.
Don't get me wrong, I've been a long-time supporter of homeownership. Financially, the capital gains exemption on your principal residence and the tax break alone tip the scale for me. But I wondered if I was alone in this thought process. So I reached out to James Laird, co-founder of Ratehub.ca and president of CanWise Financial. Here is what he had to say:
"Purchasing real estate is almost always the best choice in the long term, but not necessarily in the short term. Therefore, if you can qualify for a mortgage to purchase the type of property that you want, and your life is fairly stable (i.e. job, household size, etc.) then purchasing is usually the better choice. If you have employment uncertainty, or you are entering or exiting a relationship, then it is best to wait for those parts of your life to stabilize."
I've heard all the reasons not to buy:
- Homeownership costs will be higher than renting when you factor in taxes, repairs, insurance, etc.
- You may not be able to sell when you want to as quickly as you might like and let's not forget about the transaction costs.
- Changing your mind about where you might want to live and then having to move is far more expensive when you own.
- Interest costs eat up a huge amount of your mortgage payment in the early days.
- Home renovations rarely return dollar-for-dollar invested.
- It is an illiquid asset.
The point is you may be further ahead in the short term renting over owning but not necessarily in the long term.
So what would be the tipping point despite the financial case for renting?
Well, all I can say is I pulled the emotional trump card in our household when we decided to buy. The importance of belonging to a community, building a home and raising our family was more important than simply the financial considerations.
Plus, I knew the numbers and I knew we could afford it.
So the tipping point for those on the fence will likely be personal and carry more weight than simply dollars and cents.