20 Nov Should I ever rent instead of buy?
When I was growing up in Brooklyn, Nova Scotia, I was always taught that it was better to be “an owner than a loaner”. There was a certain amount of pride that was attached to the ownership of big ticket items like cars and houses, and selling the family home usually only came at a time when the owner’s health, age or finances could no longer maintain it.
This is no longer the case as Halifax’s diverse rental property inventory grows, the real estate market (with the exception of a few pockets) remains fairly flat, and more value is being placed on healthy, active aging. Where many homeowners used to buy a condo if they decided to downsize, many have opted to cash in early, choosing to sell their homes and rent with less responsibility.
Generally speaking, I will tell you it is always better to buy than to rent in the long term. As a tenant, every rent payment is money that you are giving away. Let’s say that you plan on renting a $2,000/month apartment for the next 20 years. That’s $480,000 to your landlord, without factoring in the inevitable rent increases. By renting, you also give up the opportunity to cash in on real estate appreciation. It may only be a little bump here and there, but real estate prices always go up in the long term and even a modest increase in value compounded over 20 years will provide a significant lift on the initial investment.
Owning a home that appreciates in value brings immeasurable intrinsic value and selling it is one of the only tax-free financial gains left. However, there are some factors that would lead me to advise a client not to buy, such as the following:
- If it is likely this will be a short term purchase due to factors such as short-term employment, relationship change, possibility of being relocated, etc.;
- If finances aren’t secure or are insufficient to weather an increase in mortgage rates or cover the cost of maintenance and repair issues that will arise. Sometimes waiting just a year is enough to find more comfortable financial footing; or
- If it is likely you will be away for long periods of time, leaving the property unattended.
Each buyer’s situation is different and it is important to take a critical look at all the relevant factors before making the decision to purchase. I am happy to sit down with new buyers, take an objective look at whether now is the time to purchase a home and advise accordingly.
Stacy Wentzell, FRI, ACCI