Rent versus buy: what is the better option? – Moneysense

The traditional argument applies: Although buying a house can build up long -term equity and stability, renting can offer flexibility and less prior costs. But because home ownership becomes a perpendicular dream for many young Canadians, can renting for life be a feasible option?

Alex Avery, author of The rich tenantthinks so. “It is different for every person, and the needs of each individual change over time, but I am still a strong in favor that renting is a great option,” he said.

Although the rents have risen since he published his book in 2016, Avery says that renting is still cheaper and entails fewer risks than buying. “People compare mortgage payments with monthly rental interest, but mortgage payments do not start to cover the full costs of home ownership,” he said. These costs may be notary fees, brokerage committees and region-specific taxes when purchasing the property and continuous costs such as mortgage interest, real estate tax, insurance and various maintenance and repair costs.

Avery was inspired to write his book during what he calls was a “speculative bubble” in the housing market when he said that a perception of home ownership created as an “easy out for savings”, especially in urban centers such as Toronto and Vancouver. ‘[Young Canadians] Were put under pressure to buy an apartment when mathematics never wanted, “he said.

Do you have to rent and invest the difference?

However, the calculations of Vancouver Realtor Owen Bigland paint a different picture. With an average monthly rent for a unit with one bedroom in his city that now waves around $ 2,800, a lifelong tenant could spend at least $ 1.3 million by the time they are 65 (not good for rent increases or inflation), according to Bigland. “And you have zero to show for it. Where are the savings here?” He asked.

Even if the monthly rental was cheaper than a mortgage payment, Bigland said that many Canadians will probably spend savings instead of investing and growing their wealth.

“Many Canadians do not have the discipline to save as much as they should,” said Sebastien Betermier, associate professor at McGill University who studies the spending on household households.

With rental prices that form at least one third of household expenses, and houses that make up 70% to 80% of homeowners’ power portfolios, Betermier says that both tenants and homeowners expose themselves to major risks.

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Recent data from a study by the health care of Ontario Pension Plan and Abacus data suggest the same. More than a third of the Canadians report less than $ 5,000 in savings, and those who own a house are increasingly trust their equity to finance their pension.

The benefits of home ownership

For this reason, Bigland preaches home ownership. He encourages you to tear away your mortgage and build equity, so that you can benefit from any price evaluation in the future. “The only real cashcare we get in Canada is the main exemption of the home,” he said.

In other words: ‘In essence, you rent [the home] Of yourself, “said Petermier. He adds that your house can act as collateral if you ever have to borrow it. Most mortgages of large banks usually contain a built -in home equity line or credit (Heloc) at a favorable rate, according to Bigland. “It is accessible without selling your house.”

However, Avery does not buy this argument. “It assumes that housing is a safer investment than other investments,” he said. “There are many places where house prices have fallen, where the outlook in employment changes over time.”

Investment alternatives if you do not buy real estate

As an alternative to trust your house as an investment, Avery proposes to place your money in an RRSP, TFSA and the FHSA, which does not necessarily have to go to a home purchase. “You can also learn about index ETFs. There are many different ways to invest your money,” he said.

Avery, who himself went the home ownership route, does not think that buying is a bad decision, but warns against it if you are on banking as an investment tool. “That is merge two different objectives,” he said. “One is to house yourself, and the other is to generate wealth.”

But Bigland, who has also written a book about real estate and shares, says you should do both. He agrees that renting can be logical in some situations, such as if you expect a change in jobs, but you must consider buying if you can bind to a location for eight to 10 years.

He suggests that first buyers start with older buildings in the vicinity of public transport, often on valuable pieces of land. ‘You will probably have a developer [buy] In 10 or 15 years, and that can be your exit strategy, he said. “Even if you’re a guy, if you can get $ 40,000, maybe even abandon the car for a while, you can do it.”