Owning your own home has always been an important part of the Canadian dream, but times they are a-changin’. The high cost of housing in many major cities and the more transient nature of the workforce often make people rethink this choice.
Related: How much house can I afford?
If you’ve already made the decision and are happy with it – good for you. But what if you’re not sure?
Owning your home
Housing related costs are the largest single expense in a person’s budget, but many people do their calculations on principal, interest, and taxes (PIT) only, without considering anything else. You’ve applied for a mortgage, come up with a down payment and closing costs, found an affordable home and, whew! – you think that’s it except for the monthly mortgage payments.
Now consider these additional costs:
- Home insurance
- Possible monthly condo fees
- Utilities – heating/electricity/water and sewer
- Furnishing a larger space
- Window coverings
- Landscaping and lawn care – and the necessary tools
- Regular maintenance
- Remodeling projects and upgrades
You may incur these costs (and more) when you first buy, or they will undoubtedly crop up in the future.
We rarely plan or budget for these expenses.
When does it make sense to buy?
It makes sense to buy if you really want to own your own home. Some other considerations are:
- You plan to live in the home for at least 5 years (some would say 10 years is better).
- You are relatively debt free.
- Total housing costs are not more than 25% of your take home pay.
- You are fairly handy and have the skills to do simple home repairs. Calling in a professional to do routine work – like changing furnace filters and/or air filters – can become expensive.
- You have the time to do repairs and regular maintenance
- You are not away from home for regular extended periods of time.
When does it make sense to rent?
One couple I know sold their suburban home and now rent an apartment in the downtown core – close to their offices, shopping and entertainment. They even sold their vehicles and rent one when required or, otherwise, use public transportation or their bikes.
Sometimes it’s better to rent when:
- You plan to move within the next 5 years,
- You hate – or don’t have the skills – to do home maintenance.
- You dread researching and getting quotes from plumbers, electricians and remodelers.
- Your career or family situation is likely to change drastically.
- You don’t have several pets and/or children.
- You want a good idea of what you’ll be paying each month.
- You value the flexibility (to travel for instance).
But it’s an investment!
Real estate can be an investment, but your personal residence should not be viewed as such. Do the math. Much of your “investment” is going to interest, taxes, insurance and the cost of upkeep.
People think that if they stay in their home for the long term and pay off their mortgage, their living expenses will be considerably reduced. But, this is usually the time when costs of repairs, replacements, and renovations will increase.
If you move within a few years consider the costs of selling.
Purchasing a home has long been considered a rite of passage – becoming an adult, settling down and being responsible.
Renting has been considered throwing your money away.
But, it’s a choice. Buying is not for everyone, and renting can be a viable option.
Do you own or rent? Would you change the situation if you could?