Money & Career

When it makes more sense to rent

Find out why buying a house isn't always the best financial decision

Why waste your hard-earned money on rent when you can buy your own place? That’s the argument most people use to make the jump from renter to buyer. It makes sense: buying a home can be a great way to build wealth over time and give you a sense of security. But it’s not for everyone – in fact, some argue that it’s not the best way to boost your net worth, especially when you consider how much it costs to maintain a place and how rocky the real estate market has been in some areas.

If you’re thinking of buying, take a moment to read these few reasons why it might make more sense to rent than buy:

It’s hassle free

When you rent, your landlord does repairs and maintenance like shoveling the snow, hauling out the garbage, and raking the leaves. As a homeowner it’s your job.

Your costs are fixed

The roof’s leaking and you’ve got raccoons living under the porch – not your problem! It’s up to your landlord to deal with – and pay for it.

You don’t have a big enough down payment

Without 5 percent of the purchase price to put down on your home, you’ll have a hard time getting a mortgage. And if you have less than 20 percent you will need CMHC mortgage loan insurance to cover risk of default. You can add that to your monthly costs.

You also need to make sure mortgage payments won’t leave you strapped – if you’re struggling to make them and the roof caves in, you’ll be putting yourself under a big financial strain.

Closing costs

You found a house you can afford – but there are a bunch of other costs that come with buying a house you need to consider. Here are just a few – legal fees, mortgage insurance (if you’re unable to put down 20 percent), home inspection fee (up to $500), land transfer tax (depending where you are buying), estoppel certificate fee (up to $100), title insurance and of course your down payment on purchase – at least 5 percent of the purchase price.

If you plan to move in less than three years

As you can see, it costs a lot to buy a house. And it costs even more to sell it when you consider the fees paid to real estate agents on top of it (as a seller they take about 5 percent of the sale price). Experts say it takes three years to recoup those costs – but even that depends on where you live and how the real estate market is doing (just look at parts of the US right now).

It’s not always the best way to build your net worth

It’s true house prices tend to rise in value over the long-term but as an investment, a home costs a lot of money to keep up – repairs, monthly bills, and upgrades can really add up over time. And if you have a mortgage, you’re paying a lot of money to the bank to borrow the money to own it. Stocks and other investments are also ways to build up your net worth over time, without the hassle and cost of home ownership.

Still not sure?

Turn to other sites to do the math – getsmarteraboutmoney.ca has a great rent or buy calculator, and colourfulmoney.com has done some math that shows renting is a better way to get rich than owning a home.

Caroline Cakebread is a Toronto-based financial writer and editor. She’s also a recovering academic and the mother of two kids. Check out her personal finance blog for Chatelaine Your Money.

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