Should I rent or buy?

Making the move from renting to owning is a big step for most and with so many contradictory opinions about which is best, it can be a pretty anxiety inducing decision.  So, I thought I’d share a story that may help anyone struggling with which direction to go. 

About 4 years back I was working with a young couple looking to buy house in Toronto’s east end.  They both had stable jobs, good incomes and had been saving up for years, and despite a hot market where bidding wars were common, they decided to jump in.

We visited nearly 25 properties over a period of 6 months; they were outbid on dream house number 1 and 2, but when number 3 came along they got a lot more aggressive and ultimately won the property, even with 5 other offers on the table.  My first-time buyer clients purchased a newly renovated 3-bedroom semi with a finished basement and a parking space.  It was perfect for them.

They loved their new home, but only recently did I find out that at the time, despite my assurances otherwise, they were terrified that they had over paid and that the market would crash at any moment.  Of course, the Toronto real estate market only strengthened and continued to do so year-over-year.  Their little semi is now worth 35 to 40% more than what they paid.

Looking back now, they feel that taking the leap into home ownership, as opposed to renting, was the best thing they could’ve done.  Not only were they in a position to comfortably carry a mortgage and all the other monthly costs associated with maintaining a property, but they really wanted a place that they could make their own and where they could raise a family. 

They now wish that they had bought years earlier.  They came to the realization that unless you’re planning on selling, the value of your home and the trajectory of prices at any one moment in time, really isn’t relevant.

Their initial reluctance stemmed from their fear of seeing prices drop but also the overwhelming deluge of advice from friends, family members, the mail man, the grocery store clerk etc. discouraging them from buying into the City’s sky rocketing real estate market.  They heard a lot of different reasons for not taking the plunge into home ownership including, “it’s not the right time,” “there’s too much maintenance,” “you could lose your job,” and “there are better ways to invest your money.”

Now, at this point you’re likely thinking that Frank, a Realtor who is inherently biased, is telling me this story to convince me that buying is the “smarter” choice when compared to renting, but you would be wrong!

The decision to buy or rent should really be based on your individual circumstances.  For example, will work keep you in one place for 5 years plus or are you likely to have to relocate in the next year or two? Do you have the monthly income to carry the mortgage, maintenance fees, property taxes, etc. and still live an active life style?  Are you able to purchase a home that will accommodate your family’s needs with the down payment that you have?

The bottom line is that there is no right answer to this question.  There are benefits to both buying and to renting, and ultimately, the choice needs to be carefully weighed and considered, keeping your lifestyle needs, time horizon and financial picture at the forefront.