Renting or buying your home: For the vast majority of us, buying a home is the investment of a lifetime. Rent or buy?
It can be difficult, not to say stressful, to see clearly. Here are 5 points to keep in mind when evaluating the pros and cons of these 2 options.
Buying or renting: advantages and disadvantages
- Accumulation of capital in a stable investment
- Potential Rental Income
- Personalization according to your tastes
- sunk costs, including property taxes
- Your mortgage is subject to interest rate fluctuations.
- Ongoing repair and maintenance costs
- Lower monthly costs (in most cases)
- Short-term commitment
- Virtually zero repair costs
- Monthly rent may increase
- The landlord may decide not to renew your lease.
- No capital accumulation
Can you afford to buy?
Once you have decided you want to buy, you need to determine if you can afford to buy. Are your finances stable enough to make a mortgage payment each month, in addition to paying for property taxes and the inevitable costs of repairs and maintenance? To determine the maximum purchase price you should not exceed, it is recommended that you multiply your annual household income by 3. In a booming market, this amount may not be enough.
Establish your monthly housing budget
Ideally, your mortgage, property taxes and utility bills should be no more than 30% of your take-home pay. Calculate your mortgage capacity to find out how much you can afford to borrow. Keep in mind the costs of owning a home, for example:
Closing costs: Legal fees, commissions, disbursements and land transfer taxes can add tens of thousands of dollars to the amount of your purchase.
Maintenance costs: Home insurance, maintenance and repairs are necessary expenses that you won’t be able to recover.
In short, you may be able to afford the home of your dreams, but if you can’t find the extra few hundred dollars in your monthly housing budget to cover these expenses, it may be more prudent to rent a comparable property at this time. This will give you money to go on vacation, to save for retirement and to deal with the unexpected.
Evaluate your long-term plans
If you buy a property and plan to move again in a few years, you may lose money on your real estate transaction. The land transfer tax, the real estate agent’s commission and legal fees may offset any capital gains you may have realized. If you know you will have to sell soon, buying a home is probably not worth it. 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 get started.
Buying: Is it a good investment?
Despite the speculation that accompanies a booming market, it’s best not to think of buying a property as an investment. The cost of repairs and property taxes, for example, mean that other types of investments can be more profitable than real estate. By renting out your home, you may have cash to invest in areas that are less volatile than the real estate market.
Renting is not always the most economical option
Of course, in harder-to-reach markets like Los Angeles and New York, rent in an upscale neighborhood can cost you more than a mortgage payment. For example, if housing represents 30% of your gross income, you need to earn $80,000 a year to afford a $2,000 a month apartment in LA.
A place to live, first and foremost
There are advantages and disadvantages to both buying and renting. Your choice really depends on your situation. At the end of the day, whether you decide to rent or buy, remember the most important thing: you have to feel good about it, because that’s where you’ll be living.