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.

Related: My biggest home buying regret was getting in over my head as a first time buyer

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.

Related: Living in the city vs. the suburbs – Pros and cons

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.

Related: Should you pay off your mortgage early or invest?

If you move within a few years consider the costs of selling.

Final thoughts

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?

Print Friendly, PDF & Email

14 Comments

  1. @kiltedbroker on November 27, 2013 at 6:52 am

    As a mortgage broker for over 7 years, I can tell you that there is significant societal pressure that says anything less than home ownership is a failure. I am not sure if it is our consumer culture or not, but from my experience, home ownership is a conclusion before any of the good questions you worked through in this post are asked.

    • Boomer on November 27, 2013 at 3:14 pm

      @kiltedbroker: I have to agree that for most people home ownership is desirable, especially when kids come into the picture. The house in the suburbs with the dog and the big yard is still a current expectation.

      People do have to think more of the costs involved though. When I did mortgage financing, as long as the GDS & TDS ratios were within guidelines, and the down payment and 1% closing costs were in place, I was not concerned with the rest.

      I see too many condo ads that pitch, “Low down payment! Mortgage cheaper than renting!”

      I was also in the unfortunate situation of dealing with a lot of foreclosures in the ’80’s after people flocked to high priced housing, then prices dropped lower than the mortgages on them. The same thing happened a few years ago.

      That said, you need a place to live, and if you want to own a home and, especially, will stay put for the long term it’s what most people want.

  2. Barold on November 27, 2013 at 8:37 am

    The 25% of take home pay is going to be challenging to meet without a sizable down payment. Six figure income and i would still need almost 50% down to afford an avg condo in toronto… (My takehome is after rrsp savings)

    • Boomer on November 27, 2013 at 3:17 pm

      @Barold: Rules of thumb are a starting point and everyone is different. You could pay more of your net income for housing costs if your other expenses are low and you don’t believe your financial and personal circumstances will change much. You need to work it out for yourself.

  3. Dean on November 27, 2013 at 9:43 am

    I think you lost a lot of credibility with the statement “it makes sense to buy if you really want to own your own home”. That’s like saying it makes sense to buy a helicopter if you really really want one or maybe it makes sense to buy an elephant because you really want to own your own zoo animal. People are currently irrational when it comes to homes right now, just because they want one doesn’t mean it makes sense.

    • Boomer on November 27, 2013 at 3:28 pm

      @Dean: Well, I respectfully disagree with you. If you really want to own your home you will do whatever it takes to save a down payment, find a good location and buy an affordable (get that – affordable) home. Houses are too expensive now to be a passing whim, or bought because it seems to be expected.

      The same holds true for helicopters and zoo animals (which I understand there is no law in Canada against owning one). It’s not just a whim if it takes some effort to obtain and maintain – and if you don’t want to put in the effort, you don’t want it enough in the first place.

      • Dean on November 27, 2013 at 8:37 pm

        I respect your reply and agree that houses are too expensive – and certainly should not be purchased on a whim or because it seems expected. But just because you really want something, doesn’t mean it makes sense, financially or otherwise, especially regarding buying houses.

        This is how we’ve gotten into this mess. Buying a house has become an emotional decision instead of a rational one. The govt has made it so easy to buy a house, it no longer takes effort like you describe, just a pulse. And while you have the naive hard working people saving that down payment and finding that “affordable” home, the other guy just bids up the price with monopoly money.

        The IMF recently reported we have the most overvalued housing market in the world. How does this make sense?

  4. Kelly on November 27, 2013 at 9:57 am

    When speaking of remodeling, even after you have a quote its waiting on the contractors. I think that’s what has finally broken me from ever wanting to own again.

    • @kiltedbroker on November 27, 2013 at 9:58 am

      Kelly… YES! I can’t do it anymore… I have flipped through 4 homes and I start to cry when thinking about dealing with contractors. I am done with all that.

  5. Potato on November 27, 2013 at 8:25 pm

    Nary a spreadsheet to be found 🙁

  6. Jane Savers @ Solving The Money Puzzle on November 27, 2013 at 9:09 pm

    Owning forces me to save. If I didn’t have to make payments on the house I might just spend it on something fun and foolish.

    Today when I looked out at all the snow in my driveway that I had to shovel I could have easily moved to a rental where someone takes care of all those things.

  7. Bryan Jaskolka on November 28, 2013 at 7:40 pm

    I don’t think it makes a lot of sense to own right now in many parts of the country. And owning a home that takes 25 per cent or less of your income is just about impossible in many parts of the country. Just owning a home costs enough with all the expenses that go wtih it, never mind finding the money to buy one at today’s prices.

  8. Charles on November 30, 2013 at 10:44 am

    Those math equations are fine but only if you live in a city with rental properties readily available. What about rural Canada where there are few and if there are you can often get bounced when the owner wants it back or decides to sell?

  9. Alan Uren on March 4, 2014 at 1:50 pm

    My wife and I made the decision to sell our home 5 years ago and rent a nice condo in downtown Halifax. NEVER regretted it!!
    The one financial factor left off this analysis is the opportunity cost of the capital tied ip in your house at a realistic 5% per year that really changes the financial scales in favour of renting.
    Our rented condo is a full third less expensive than owning. On that difference we can afford to go south each year and not have to worry about the ‘house’ while we’re gone.
    And those nice low interest rates aren’t going last forever.

Leave a Comment