The rental of a home and the acquisition of a property both have their share of advantages and risks. Here are five questions to ask yourself to determine if it's better to buy a house or remain a tenant.
There is no definitive answer to the eternal debate between renting and owning, believes Audrey Hubert-Vallières, mortgage development manager at the National Bank. There are multiple factors to consider, and the equation has its fair share of unknown variables: what will the real estate market look like in 5 years, how much will it cost to renovate in the next 10 years? “It’s case by case,” distinguishes the expert.
The key to maximize the profit of your investment in real estate is keeping the property over the long term. “If you’re thinking about moving every two years, perhaps buying is a bad idea,” considers Ms. Hubert-Vallières. If, however, you have a stable job and you’re ready to settle down with a family, purchasing a home can become more enticing.
To realistically compare renting versus buying, we first have to calculate the costs associated with each.
From a renting standpoint, you just need to calculate the cost of rent and a few household expenses. The electric bill will vary according to the size and age of the housing. The owner will take care of taxes and other costs inherent to the building.
From a buying standpoint, think about including these other expenses in the equation: lawyer’s fees for the transaction, transfer tax on the first year (welcome tax), school and municipal taxes, payments and interest on the mortgage as well as co-ownership expenses (if applicable). These are the main expenditures to include in the equation. The electric bill and general maintenance will also vary according to the size and type of property you choose.
“If there’s no huge difference between the two, becoming an owner can be interesting, since you’ll regain this sum with added value on the home over the years. You also have to consider the capital generated with the repayment of your mortgage also over time,” considers Audrey Hubert-Vallières.
In addition, the capital gain collected when the principal residence is sold is tax-exempt, which constitutes a major financial advantage for owners.
Thanks to mortgage insurance (like the one offered by the Canada Mortgage and Housing Corporation ), you can start owning by placing a down payment that corresponds to only 5% of the home price (loan insurance is mandatory in Canada if you place a down payment lower than 20% of the property price).
The hitch: this insurance isn’t free. For a property purchased at $300,000 with a down payment of $15,000 and an amortization over 25 years (the maximum for an insured loan), the premium rises to 4%, or $11,400. This premium, however, can be added to the mortgage.
The important thing is to draw a clear picture of your finances before moving from tenant to owner.
If you are one of those who find it more difficult to save systematically, the repayment of your loan for the purchase of a home can represent a “forced saving” which will result in benefits when you sell the home (with the added value on the property).
If you are tenants who have the discipline to put money aside and invest the difference between property costs and the amount of their rent, you can also build a significant nest egg over the years. This is especially the case if you take full advantage of registered investments: the RESP for its subsidies from federal and provincial governments (if you are parents), the RRSP and the TFSA for the tax exemption rights they provide.
For many, having a house is an accomplishment and a source of pride. It also provides the feeling of being at home. If you choose to become homeowners, the repayment of a mortgage over the months and the value added generated by a home also provides financial comfort. However, you have to factor in a certain unpredictability of expenses, when the roof leaks or the gutters need to be replaced, for example.
By remaining a tenant you'll benefit from more freedom and flexibility; a simple phone call to the owner is all it takes to fix the heat or when a drain is clogged. However, you won’t be able to take advantage of the value that your building generates.
Beyond the financial considerations, opting to rent or buy your home, ultimately remains a question of lifestyle and values.
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