Renting Versus Buying: The Choice

A person can rent or own their home. The system works in various ways, and there are no clear answers. The best option resides in the numbers and what the renter or buyer is comfortable with.

So, let’s look at how this works. We have two options, renting a house for $1500/month and buying a house for $400,000.

Overall, in a year of renting that house, you would pay about $18,000/year. Now, buying a house you would need a down payment, let’s say the tenant puts down $100,000 of the total $400,000.

The average income for a family in Canada is well below $400,000 or even $100,000 so at this point, the person would take out a mortgage for the remaining $300,000. Of course, there are fixed mortgages, which means paying down a lot of interest before the actual loan.

Interestingly enough, if the interest on the mortgage is 6 per cent, and you choose an interest only mortgage, you would be paying $18,000 in interest. Any interest on the mortgage is tax deductible. This helps the homeowner save on taxable income.

Included in owning a home means you will pay property tax. A homeowner will also pay for expenses for up-keep of the house. Costly, one might say. Reasonable, others might say.

Now, renting at about $1500/month comes to a total of $18,000/year, which is about the same amount as owning the house. But you could keep your $100,000 and invest it, yielding the renter about $2,000 per month in investment income. A tenant would be paying $16,000 for their property a year because investment income is tax deductible.

In this sense, renting would be better. However, let’s weigh the benefits of both. Owning a home provides stability and protection against the unstable rent market. It allows you to make improvements to your home. You own the space, make it your own.

Renting allows for flexibility, for new professionals or people who often need to travel or move for various reason. It also protects people from the overpriced housing market. The housing market can change very quickly.
But, as you can see there are no easy answers to renting versus buying, and the better option could change based on the numbers in these equations changing. Economical decisions are rarely easy and come with high amounts of decision-making. It’s important to do your research and you will know what is best for you.