Should You Rent Or Buy A Home?

W hen making such a huge life decision, it can be difficult, if not stressful, to see clearly and choose the correct option for you. Should you rent or buy a home? Here are 5 things to keep in mind as you assess the pros and cons of these two options. Assess everything with a clear mind and then you can decide what the best option is for you! 

Buy Or Rent: Advantages And Disadvantages

Buying Your Own Home

Advantages:

• Accumulation of capital in a stable investment
• Potential rental income
• Customization according to your tastes

Disadvantages:

• Sunk costs, including property taxes
• Your mortgage is subject to interest rate fluctuations
• Ongoing repair and maintenance costs

Renting a Home

Advantages:

• Lower monthly costs (in most cases)
• Short term commitment
• Practically zero repair costs

Disadvantages:

• Monthly rent may increase
• The landlord might not let you renew the lease
• No capital accumulation

Before deciding on an option, it’s imperative that you weigh all your options and ask yourself the important questions. The most important question being, can you afford to buy a house?

After you have decided that you want to buy, you need to determine if that decision is practical and you can actually buy your own home. Are your finances stable enough that you can make one mortgage payment every month, on top of paying for property taxes and the inevitable repair and maintenance costs? To make sure that the purchase price limit is not exceeded, it is recommended to multiply the annual income of the household by three. In a booming market, this amount may be insufficient. 

Factors To Consider When Buying a Home

Establish Your Monthly Housing Budget

Ideally, your mortgage, property taxes, and utility bills should be a maximum of 30% of your take-home pay. Calculate your mortgage borrowing capacity to find out how much you can afford to borrow. Keep in mind the costs of owning, which can include:

• Conclusion Fees: Legal fees, commissions, disbursements, and land transfer tax can add tens of thousands of dollars to your purchase amount.
• Maintenance costs : Home insurance, maintenance, and repairs are necessary expenses that you will not be able to recover.

In summary, you might be able to afford the home of your dreams, but if you can't find the extra few hundred dollars needed to cover these expenses in your monthly housing budget  then it might be safer to rent a comparable property for now. This will give you money to go on vacation, to save for your retirement and to deal with the unexpected.

Evaluate Your Long-Term Plans

If you are buying a property and planning to move again within a few years, you may be losing money on your real estate transaction. Land transfer tax, real estate agent's commission, and legal fees could offset any capital gains you may have realized. If you know you will have to sell soon, buying a home is probably not worth the effort. If you're new to the real estate market, but want to live in an attractive city, renting for a few years will give you a better understanding of the local market before you jump into it.

Buying: Is It A Good Investment?

Despite the speculation that accompanies a booming market, it's best not to view the purchase of a property as an investment. The cost of repairs and property taxes, for example, mean that other types of investments may be more profitable than real estate. By renting out your home, you may have cash to invest in sectors that are less volatile than the real estate market.

Renting Is Not Always The Cheapest Option

Of course, in more difficult markets like high profile areas, rent in an upscale neighborhood can cost you more than a mortgage payment. For example, if housing is 30% of your gross income, you need to earn $80,000 per year to be able to afford a $2,000 per month apartment in an upper class neighbourhood.

A Place To Live, First And Foremost

There are both advantages and disadvantages to buying or renting. Your choice really depends on your situation. At the end of the day, whether you decide to rent or buy, don't forget the basics; you have to feel good there, since this is where you will be living. So now the question is whether you should buy or rent a home? Ask yourself these basics and then decide what to do!

• This post is tagged in:

• Homeowners
• Rent or buy
• House value